Correlation Between Best Buy and Costco Wholesale

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Can any of the company-specific risk be diversified away by investing in both Best Buy 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 Best Buy and Costco Wholesale into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Best Buy Co and Costco Wholesale Corp, you can compare the effects of market volatilities on Best Buy 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 Best Buy with a short position of Costco Wholesale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Best Buy and Costco Wholesale.

Diversification Opportunities for Best Buy and Costco Wholesale

0.41
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Best and Costco is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Best Buy Co 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 Best Buy 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 Best Buy Co 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 Best Buy i.e., Best Buy and Costco Wholesale go up and down completely randomly.

Pair Corralation between Best Buy and Costco Wholesale

Considering the 90-day investment horizon Best Buy Co is expected to generate 0.87 times more return on investment than Costco Wholesale. However, Best Buy Co is 1.15 times less risky than Costco Wholesale. It trades about 0.13 of its potential returns per unit of risk. Costco Wholesale Corp is currently generating about -0.03 per unit of risk. If you would invest  7,811  in Best Buy Co on December 29, 2023 and sell it today you would earn a total of  376.00  from holding Best Buy Co or generate 4.81% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Best Buy Co  vs.  Costco Wholesale Corp

 Performance 
       Timeline  
Best Buy 

Risk-Adjusted Performance

4 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Best Buy Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating fundamental drivers, Best Buy may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Costco Wholesale Corp 

Risk-Adjusted Performance

10 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Costco Wholesale may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Best Buy and Costco Wholesale Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Best Buy and Costco Wholesale

The main advantage of trading using opposite Best Buy and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Best Buy 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 Best Buy Co 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.

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