Correlation Between Costco Wholesale and Procter Gamble

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

Diversification Opportunities for Costco Wholesale and Procter Gamble

0.4

Correlation Coefficient

Costco Wholesale  Procter Gamble

Very weak diversification

The 3 months correlation between Costco and Procter is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and Procter Gamble in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Procter Gamble 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 Procter Gamble. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Procter Gamble has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Procter Gamble go up and down completely randomly.

Pair Corralation between Costco Wholesale and Procter Gamble

Given the investment horizon of 90 days Costco Wholesale Corp is expected to generate 1.42 times more return on investment than Procter Gamble. However, Costco Wholesale is 1.42 times more volatile than Procter Gamble. It trades about 0.06 of its potential returns per unit of risk. Procter Gamble is currently generating about 0.02 per unit of risk. If you would invest  49,951  in Costco Wholesale Corp on January 25, 2024 and sell it today you would earn a total of  22,317  from holding Costco Wholesale Corp or generate 44.68% return on investment over 90 days.

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

Costco Wholesale Corp  vs.  Procter Gamble

Costco Wholesale Corp

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Costco Wholesale may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Procter Gamble

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Procter Gamble are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Procter Gamble is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Costco Wholesale and Procter Gamble

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

The idea behind Costco Wholesale Corp and Procter Gamble 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.