Correlation Between Walmart and Costco Wholesale
Can any of the company-specific risk be diversified away by investing in both Walmart 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 Walmart and Costco Wholesale into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Walmart and Costco Wholesale Corp, you can compare the effects of market volatilities on Walmart 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 Walmart with a short position of Costco Wholesale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Walmart and Costco Wholesale.
Diversification Opportunities for Walmart and Costco Wholesale
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Walmart and Costco is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Walmart 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 Walmart 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 Walmart 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 Walmart i.e., Walmart and Costco Wholesale go up and down completely randomly.
Pair Corralation between Walmart and Costco Wholesale
Considering the 90-day investment horizon Walmart is expected to under-perform the Costco Wholesale. But the stock apears to be less risky and, when comparing its historical volatility, Walmart is 1.08 times less risky than Costco Wholesale. The stock trades about -0.06 of its potential returns per unit of risk. The Costco Wholesale Corp is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest 73,098 in Costco Wholesale Corp on January 26, 2024 and sell it today you would lose (709.00) from holding Costco Wholesale Corp or give up 0.97% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Walmart vs. Costco Wholesale Corp
Performance |
| Timeline |
| Walmart |
| Costco Wholesale Corp |
Walmart and Costco Wholesale Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Walmart and Costco Wholesale
The main advantage of trading using opposite Walmart and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walmart 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.| Walmart vs. Costco Wholesale Corp | Walmart vs. Dollar Tree | Walmart vs. BJs Wholesale Club | Walmart vs. Big Lots |
| Costco Wholesale vs. Walmart | Costco Wholesale vs. Dollar Tree | Costco Wholesale vs. BJs Wholesale Club | Costco Wholesale vs. Big Lots |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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