Correlation Between Costco Wholesale and Air Canada

Can any of the company-specific risk be diversified away by investing in both Costco Wholesale and Air Canada 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 Air Canada 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 Air Canada, you can compare the effects of market volatilities on Costco Wholesale and Air Canada 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 Air Canada. Check out your portfolio center. Please also check ongoing floating volatility patterns of Costco Wholesale and Air Canada.

Diversification Opportunities for Costco Wholesale and Air Canada

-0.26

Correlation Coefficient

Costco Wholesale  Air Canada

Very good diversification

The 3 months correlation between Costco and Air is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and Air Canada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Canada 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 Air Canada. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Canada has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Air Canada go up and down completely randomly.

Pair Corralation between Costco Wholesale and Air Canada

Assuming the 90 days trading horizon Costco Wholesale Corp is expected to under-perform the Air Canada. But the stock apears to be less risky and, when comparing its historical volatility, Costco Wholesale Corp is 1.91 times less risky than Air Canada. The stock trades about -0.06 of its potential returns per unit of risk. The Air Canada is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,947  in Air Canada on January 26, 2024 and sell it today you would earn a total of  46.00  from holding Air Canada or generate 2.36% return on investment over 90 days.

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

Costco Wholesale Corp  vs.  Air Canada

Costco Wholesale Corp

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 5 (%) 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.

Air Canada

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Air Canada are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Air Canada is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Costco Wholesale and Air Canada

The main advantage of trading using opposite Costco Wholesale and Air Canada positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Costco Wholesale position performs unexpectedly, Air Canada 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 Air Canada will offset losses from the drop in Air Canada's long position.

The idea behind Costco Wholesale Corp and Air Canada 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.