Correlation Between Walgreens Boots and Costco Wholesale

Can any of the company-specific risk be diversified away by investing in both Walgreens Boots and Costco Wholesale at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Walgreens Boots and Costco Wholesale into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Walgreens Boots Alliance and Costco Wholesale Corp, you can compare the effects of market volatilities on Walgreens Boots and Costco Wholesale and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Walgreens Boots with a short position of Costco Wholesale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walgreens Boots and Costco Wholesale.

Diversification Opportunities for Walgreens Boots and Costco Wholesale

0.22

Correlation Coefficient

Walgreens Boots  Costco Wholesale

Modest diversification

The 3 months correlation between Walgreens and Costco is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Walgreens Boots Alliance and Costco Wholesale Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale Corp and Walgreens Boots is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Walgreens Boots Alliance are associated (or correlated) with Costco Wholesale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Costco Wholesale Corp has no effect on the direction of Walgreens Boots i.e., Walgreens Boots and Costco Wholesale go up and down completely randomly.

Pair Corralation between Walgreens Boots and Costco Wholesale

Assuming the 90 days horizon Walgreens Boots is expected to generate 1.14 times less return on investment than Costco Wholesale. In addition to that, Walgreens Boots is 2.58 times more volatile than Costco Wholesale Corp. It trades about 0.06 of its total potential returns per unit of risk. Costco Wholesale Corp is currently generating about 0.17 per unit of volatility. If you would invest  79,984  in Costco Wholesale Corp on September 3, 2024 and sell it today you would earn a total of  11,606  from holding Costco Wholesale Corp or generate 14.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Walgreens Boots Alliance  vs.  Costco Wholesale Corp

Walgreens Boots Alliance

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Walgreens Boots Alliance are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Walgreens Boots may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Costco Wholesale Corp

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Costco Wholesale displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Walgreens Boots and Costco Wholesale

The main advantage of trading using opposite Walgreens Boots and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walgreens Boots position performs unexpectedly, Costco Wholesale can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Costco Wholesale will offset losses from the drop in Costco Wholesale's long position.

The idea behind Walgreens Boots Alliance and Costco Wholesale Corp pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .