Correlation Between Costco Wholesale and PriceSmart
Can any of the company-specific risk be diversified away by investing in both Costco Wholesale and PriceSmart 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 Costco Wholesale and PriceSmart into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Costco Wholesale Corp and PriceSmart, you can compare the effects of market volatilities on Costco Wholesale and PriceSmart 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 Costco Wholesale with a short position of PriceSmart. Check out your portfolio center. Please also check ongoing floating volatility patterns of Costco Wholesale and PriceSmart.
Diversification Opportunities for Costco Wholesale and PriceSmart
0.7 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Costco and PriceSmart is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and PriceSmart in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PriceSmart and Costco Wholesale 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 Costco Wholesale Corp are associated (or correlated) with PriceSmart. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PriceSmart has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and PriceSmart go up and down completely randomly.
Pair Corralation between Costco Wholesale and PriceSmart
Given the investment horizon of 90 days Costco Wholesale Corp is expected to under-perform the PriceSmart. But the stock apears to be less risky and, when comparing its historical volatility, Costco Wholesale Corp is 1.85 times less risky than PriceSmart. The stock trades about -0.05 of its potential returns per unit of risk. The PriceSmart is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 8,073 in PriceSmart on January 26, 2024 and sell it today you would earn a total of 18.00 from holding PriceSmart or generate 0.22% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Costco Wholesale Corp vs. PriceSmart
Performance |
| Timeline |
| Costco Wholesale Corp |
| PriceSmart |
Costco Wholesale and PriceSmart Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Costco Wholesale and PriceSmart
The main advantage of trading using opposite Costco Wholesale and PriceSmart positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Costco Wholesale position performs unexpectedly, PriceSmart 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 PriceSmart will offset losses from the drop in PriceSmart's long position.| Costco Wholesale vs. Walmart | Costco Wholesale vs. Dollar Tree | Costco Wholesale vs. BJs Wholesale Club | Costco Wholesale vs. Big Lots |
| PriceSmart vs. Wal Mart de | PriceSmart vs. Pan Pacific International | PriceSmart vs. Dollarama | PriceSmart vs. Dollar General |
Check out your portfolio center.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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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