Correlation Between Air Canada and Costco Wholesale

Can any of the company-specific risk be diversified away by investing in both Air Canada 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 Air Canada and Costco Wholesale into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Air Canada and Costco Wholesale Corp, you can compare the effects of market volatilities on Air Canada 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 Air Canada with a short position of Costco Wholesale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Air Canada and Costco Wholesale.

Diversification Opportunities for Air Canada and Costco Wholesale

-0.23

Correlation Coefficient

Air Canada  Costco Wholesale

Very good diversification

The 3 months correlation between Air and Costco is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Air Canada 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 Air Canada 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 Air Canada 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 Air Canada i.e., Air Canada and Costco Wholesale go up and down completely randomly.

Pair Corralation between Air Canada and Costco Wholesale

Assuming the 90 days horizon Air Canada is expected to under-perform the Costco Wholesale. In addition to that, Air Canada is 1.41 times more volatile than Costco Wholesale Corp. It trades about -0.05 of its total potential returns per unit of risk. Costco Wholesale Corp is currently generating about 0.14 per unit of volatility. If you would invest  2,445  in Costco Wholesale Corp on January 24, 2024 and sell it today you would earn a total of  898.00  from holding Costco Wholesale Corp or generate 36.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Air Canada  vs.  Costco Wholesale Corp

Air Canada

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Air Canada are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Air Canada may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Costco Wholesale Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Costco Wholesale is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Air Canada and Costco Wholesale

The main advantage of trading using opposite Air Canada and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Canada 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 Air Canada 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.