Correlation Between Costco Wholesale and Tesla

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

By analyzing existing cross correlation between Costco Wholesale and Tesla Inc, you can compare the effects of market volatilities on Costco Wholesale and Tesla 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 Tesla. Check out your portfolio center. Please also check ongoing floating volatility patterns of Costco Wholesale and Tesla.

Diversification Opportunities for Costco Wholesale and Tesla

0.91

Correlation Coefficient

Costco Wholesale  Tesla

Almost no diversification

The 3 months correlation between Costco and Tesla is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale and Tesla Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tesla Inc 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 are associated (or correlated) with Tesla. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tesla Inc has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Tesla go up and down completely randomly.

Pair Corralation between Costco Wholesale and Tesla

Assuming the 90 days trading horizon Costco Wholesale is expected to generate 6.03 times less return on investment than Tesla. But when comparing it to its historical volatility, Costco Wholesale is 3.33 times less risky than Tesla. It trades about 0.11 of its potential returns per unit of risk. Tesla Inc is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  490,108  in Tesla Inc on September 24, 2024 and sell it today you would earn a total of  364,525  from holding Tesla Inc or generate 74.38% return on investment over 90 days.

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

Costco Wholesale  vs.  Tesla Inc

Costco Wholesale

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Costco Wholesale may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Tesla Inc

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Tesla showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Costco Wholesale and Tesla

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

The idea behind Costco Wholesale and Tesla Inc 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.