Correlation Between VF and Costco Wholesale

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Can any of the company-specific risk be diversified away by investing in both VF and Costco Wholesale 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 VF and Costco Wholesale into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between VF Corporation and Costco Wholesale Corp, you can compare the effects of market volatilities on VF and Costco Wholesale 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 VF with a short position of Costco Wholesale. Check out your portfolio center. Please also check ongoing floating volatility patterns of VF and Costco Wholesale.

Diversification Opportunities for VF and Costco Wholesale

-0.68
  Correlation Coefficient

Excellent diversification

The 3 months correlation between VF and Costco is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding VF Corp. and Costco Wholesale Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale Corp and VF 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 VF Corporation are associated (or correlated) with Costco Wholesale. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Costco Wholesale Corp has no effect on the direction of VF i.e., VF and Costco Wholesale go up and down completely randomly.

Pair Corralation between VF and Costco Wholesale

Considering the 90-day investment horizon VF is expected to generate 10.21 times less return on investment than Costco Wholesale. In addition to that, VF is 3.28 times more volatile than Costco Wholesale Corp. It trades about 0.01 of its total potential returns per unit of risk. Costco Wholesale Corp is currently generating about 0.17 per unit of volatility. If you would invest  55,677  in Costco Wholesale Corp on December 29, 2023 and sell it today you would earn a total of  17,248  from holding Costco Wholesale Corp or generate 30.98% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy99.19%
ValuesDaily Returns

VF Corp.  vs.  Costco Wholesale Corp

 Performance 
       Timeline  
VF Corporation 

Risk-Adjusted Performance

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Very Weak
Over the last 90 days VF Corporation has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.
Costco Wholesale Corp 

Risk-Adjusted Performance

10 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Costco Wholesale may actually be approaching a critical reversion point that can send shares even higher in April 2024.

VF and Costco Wholesale Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with VF and Costco Wholesale

The main advantage of trading using opposite VF and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VF position performs unexpectedly, Costco Wholesale 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 Costco Wholesale will offset losses from the drop in Costco Wholesale's long position.
The idea behind VF Corporation and Costco Wholesale Corp 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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