Correlation Between Costco Wholesale and Best Buy

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

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

Diversification Opportunities for Costco Wholesale and Best Buy

-0.52

Correlation Coefficient

Costco Wholesale  Best Buy

Excellent diversification

The 3 months correlation between Costco and Best is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale and Best Buy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Best Buy 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 Best Buy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Best Buy has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Best Buy go up and down completely randomly.

Pair Corralation between Costco Wholesale and Best Buy

Assuming the 90 days trading horizon Costco Wholesale is expected to generate 1.32 times more return on investment than Best Buy. However, Costco Wholesale is 1.32 times more volatile than Best Buy Co. It trades about 0.15 of its potential returns per unit of risk. Best Buy Co is currently generating about -0.01 per unit of risk. If you would invest  12,414  in Costco Wholesale on September 23, 2024 and sell it today you would earn a total of  2,122  from holding Costco Wholesale or generate 17.09% return on investment over 90 days.

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

Costco Wholesale  vs.  Best Buy Co

Costco Wholesale

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Costco Wholesale sustained solid returns over the last few months and may actually be approaching a breakup point.

Best Buy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Best Buy Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Best Buy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Costco Wholesale and Best Buy

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

The idea behind Costco Wholesale and Best Buy Co 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 Stocks Directory module to find actively traded stocks across global markets.