Correlation Between Costco Wholesale and Illinois Tool

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

Diversification Opportunities for Costco Wholesale and Illinois Tool

0.18

Correlation Coefficient

Costco Wholesale  Illinois Tool

Average diversification

The 3 months correlation between Costco and Illinois is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and Illinois Tool Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Illinois Tool Works 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 Illinois Tool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Illinois Tool Works has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Illinois Tool go up and down completely randomly.

Pair Corralation between Costco Wholesale and Illinois Tool

Given the investment horizon of 90 days Costco Wholesale Corp is expected to generate 1.13 times more return on investment than Illinois Tool. However, Costco Wholesale is 1.13 times more volatile than Illinois Tool Works. It trades about 0.06 of its potential returns per unit of risk. Illinois Tool Works is currently generating about 0.04 per unit of risk. If you would invest  48,603  in Costco Wholesale Corp on January 26, 2024 and sell it today you would earn a total of  23,786  from holding Costco Wholesale Corp or generate 48.94% return on investment over 90 days.

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

Costco Wholesale Corp  vs.  Illinois Tool Works

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 comparatively stable basic indicators, Costco Wholesale is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Illinois Tool Works

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Illinois Tool Works has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Illinois Tool is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Costco Wholesale and Illinois Tool

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

The idea behind Costco Wholesale Corp and Illinois Tool Works 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.