Correlation Between Brookfield Office and Costco Wholesale

Can any of the company-specific risk be diversified away by investing in both Brookfield Office 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 Brookfield Office and Costco Wholesale into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Brookfield Office Properties and Costco Wholesale Corp, you can compare the effects of market volatilities on Brookfield Office 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 Brookfield Office with a short position of Costco Wholesale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brookfield Office and Costco Wholesale.

Diversification Opportunities for Brookfield Office and Costco Wholesale

0.6

Correlation Coefficient

Brookfield Office  Costco Wholesale

Poor diversification

The 3 months correlation between Brookfield and Costco is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Brookfield Office Properties 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 Brookfield Office 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 Brookfield Office Properties 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 Brookfield Office i.e., Brookfield Office and Costco Wholesale go up and down completely randomly.

Pair Corralation between Brookfield Office and Costco Wholesale

Assuming the 90 days trading horizon Brookfield Office Properties is expected to generate 1.06 times more return on investment than Costco Wholesale. However, Brookfield Office is 1.06 times more volatile than Costco Wholesale Corp. It trades about 0.29 of its potential returns per unit of risk. Costco Wholesale Corp is currently generating about 0.15 per unit of risk. If you would invest  1,355  in Brookfield Office Properties on September 17, 2024 and sell it today you would earn a total of  294.00  from holding Brookfield Office Properties or generate 21.7% return on investment over 90 days.

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

Brookfield Office Properties  vs.  Costco Wholesale Corp

Brookfield Office

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days Brookfield Office Properties has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, Brookfield Office sustained solid returns over the last few months and may actually be approaching a breakup point.

Costco Wholesale Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Costco Wholesale may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Brookfield Office and Costco Wholesale

The main advantage of trading using opposite Brookfield Office and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brookfield Office 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 Brookfield Office Properties 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.