Correlation Between Costco Wholesale and Diamond Estates

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

Diversification Opportunities for Costco Wholesale and Diamond Estates

-0.79

Correlation Coefficient

Costco Wholesale  Diamond Estates

Pay attention - limited upside

The 3 months correlation between Costco and Diamond is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and Diamond Estates Wines in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Estates Wines 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 Diamond Estates. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Estates Wines has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Diamond Estates go up and down completely randomly.

Pair Corralation between Costco Wholesale and Diamond Estates

Assuming the 90 days trading horizon Costco Wholesale Corp is expected to generate 0.22 times more return on investment than Diamond Estates. However, Costco Wholesale Corp is 4.56 times less risky than Diamond Estates. It trades about 0.09 of its potential returns per unit of risk. Diamond Estates Wines is currently generating about -0.12 per unit of risk. If you would invest  4,209  in Costco Wholesale Corp on September 20, 2024 and sell it today you would earn a total of  259.00  from holding Costco Wholesale Corp or generate 6.15% return on investment over 90 days.

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

Costco Wholesale Corp  vs.  Diamond Estates Wines

Costco Wholesale Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal technical and fundamental indicators, Costco Wholesale may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Diamond Estates Wines

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diamond Estates Wines has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Costco Wholesale and Diamond Estates

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

The idea behind Costco Wholesale Corp and Diamond Estates Wines 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.