Correlation Between Costco Wholesale and Alcoa Corp
Can any of the company-specific risk be diversified away by investing in both Costco Wholesale and Alcoa Corp 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 Alcoa Corp 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 Alcoa Corp, you can compare the effects of market volatilities on Costco Wholesale and Alcoa Corp 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 Alcoa Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Costco Wholesale and Alcoa Corp.
Diversification Opportunities for Costco Wholesale and Alcoa Corp
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Costco and Alcoa is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and Alcoa Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alcoa Corp 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 Alcoa Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alcoa Corp has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Alcoa Corp go up and down completely randomly.
Pair Corralation between Costco Wholesale and Alcoa Corp
Given the investment horizon of 90 days Costco Wholesale Corp is expected to generate 0.31 times more return on investment than Alcoa Corp. However, Costco Wholesale Corp is 3.24 times less risky than Alcoa Corp. It trades about 0.6 of its potential returns per unit of risk. Alcoa Corp is currently generating about -0.23 per unit of risk. If you would invest 79,300 in Costco Wholesale Corp on March 21, 2024 and sell it today you would earn a total of 7,775 from holding Costco Wholesale Corp or generate 9.8% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Costco Wholesale Corp vs. Alcoa Corp
Performance |
Timeline |
Costco Wholesale Corp |
Alcoa Corp |
Costco Wholesale and Alcoa Corp Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Costco Wholesale and Alcoa Corp
The main advantage of trading using opposite Costco Wholesale and Alcoa Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Costco Wholesale position performs unexpectedly, Alcoa Corp 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 Alcoa Corp will offset losses from the drop in Alcoa Corp's long position.Costco Wholesale vs. White Mountains Insurance | Costco Wholesale vs. Pfizer Inc | Costco Wholesale vs. RLI Corp | Costco Wholesale vs. W R Berkley |
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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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