Correlation Between Costco Wholesale and BMO Global

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

Diversification Opportunities for Costco Wholesale and BMO Global

0.43

Correlation Coefficient

Costco Wholesale  BMO Global

Very weak diversification

The 3 months correlation between Costco and BMO is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and BMO Global Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMO Global Communications 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 BMO Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMO Global Communications has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and BMO Global go up and down completely randomly.

Pair Corralation between Costco Wholesale and BMO Global

Assuming the 90 days trading horizon Costco Wholesale Corp is expected to generate 1.67 times more return on investment than BMO Global. However, Costco Wholesale is 1.67 times more volatile than BMO Global Communications. It trades about 0.13 of its potential returns per unit of risk. BMO Global Communications is currently generating about 0.12 per unit of risk. If you would invest  2,316  in Costco Wholesale Corp on January 20, 2024 and sell it today you would earn a total of  1,012  from holding Costco Wholesale Corp or generate 43.7% return on investment over 90 days.

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

Costco Wholesale Corp  vs.  BMO Global Communications

Costco Wholesale Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 2 (%) 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 latest stock price tumult, may contribute to shorter-term losses for the shareholders.

BMO Global Communications

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BMO Global Communications are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, BMO Global is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Costco Wholesale and BMO Global

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

The idea behind Costco Wholesale Corp and BMO Global Communications 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.