Correlation Between Costco Wholesale and LPL Financial

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

Diversification Opportunities for Costco Wholesale and LPL Financial

0.78

Correlation Coefficient

Costco Wholesale  LPL Financial

Poor diversification

The 3 months correlation between Costco and LPL is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and LPL Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LPL Financial Holdings 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 LPL Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LPL Financial Holdings has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and LPL Financial go up and down completely randomly.

Pair Corralation between Costco Wholesale and LPL Financial

Given the investment horizon of 90 days Costco Wholesale Corp is expected to under-perform the LPL Financial. But the stock apears to be less risky and, when comparing its historical volatility, Costco Wholesale Corp is 1.23 times less risky than LPL Financial. The stock trades about -0.12 of its potential returns per unit of risk. The LPL Financial Holdings is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  26,253  in LPL Financial Holdings on January 24, 2024 and sell it today you would earn a total of  176.00  from holding LPL Financial Holdings or generate 0.67% 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.  LPL Financial Holdings

Costco Wholesale Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 4 (%) 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

LPL Financial Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in LPL Financial Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating essential indicators, LPL Financial may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Costco Wholesale and LPL Financial

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

The idea behind Costco Wholesale Corp and LPL Financial Holdings 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.

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 CEOs Directory module to screen CEOs from public companies around the world.