Correlation Between Costco Wholesale and JSE

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

Diversification Opportunities for Costco Wholesale and JSE

-0.14

Correlation Coefficient

Costco Wholesale  JSE

Good diversification

The 3 months correlation between Costco and JSE is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and JSE Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JSE Limited 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 JSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JSE Limited has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and JSE go up and down completely randomly.

Pair Corralation between Costco Wholesale and JSE

Given the investment horizon of 90 days Costco Wholesale Corp is expected to generate 0.78 times more return on investment than JSE. However, Costco Wholesale Corp is 1.28 times less risky than JSE. It trades about 0.09 of its potential returns per unit of risk. JSE Limited is currently generating about 0.02 per unit of risk. If you would invest  64,942  in Costco Wholesale Corp on January 20, 2024 and sell it today you would earn a total of  6,009  from holding Costco Wholesale Corp or generate 9.25% 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.  JSE Limited

Costco Wholesale Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 3 (%) 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 recent stock price uproar, may contribute to short-horizon losses for the private investors.

JSE Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days JSE Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking indicators, JSE is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Costco Wholesale and JSE

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

The idea behind Costco Wholesale Corp and JSE Limited 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.