Correlation Between Costco Wholesale and British Amer

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

Diversification Opportunities for Costco Wholesale and British Amer

0.49
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Costco and British is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and British American Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on British American Tobacco 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 British Amer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of British American Tobacco has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and British Amer go up and down completely randomly.

Pair Corralation between Costco Wholesale and British Amer

Given the investment horizon of 90 days Costco Wholesale Corp is expected to generate 1.04 times more return on investment than British Amer. However, Costco Wholesale is 1.04 times more volatile than British American Tobacco. It trades about 0.09 of its potential returns per unit of risk. British American Tobacco is currently generating about 0.09 per unit of risk. If you would invest  69,395  in Costco Wholesale Corp on December 20, 2023 and sell it today you would earn a total of  3,759  from holding Costco Wholesale Corp or generate 5.42% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Costco Wholesale Corp  vs.  British American Tobacco

 Performance 
       Timeline  
Costco Wholesale Corp 

Risk-Adjusted Performance

12 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Costco Wholesale unveiled solid returns over the last few months and may actually be approaching a breakup point.
British American Tobacco 

Risk-Adjusted Performance

8 of 100

 
Low
 
High
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting basic indicators, British Amer may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Costco Wholesale and British Amer Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Costco Wholesale and British Amer

The main advantage of trading using opposite Costco Wholesale and British Amer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Costco Wholesale position performs unexpectedly, British Amer 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 British Amer will offset losses from the drop in British Amer's long position.
The idea behind Costco Wholesale Corp and British American Tobacco 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 AI Investment Finder module to use AI to screen and filter profitable investment opportunities.

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