Correlation Between First Majestic and Costco Wholesale

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

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

Diversification Opportunities for First Majestic and Costco Wholesale

-0.46

Correlation Coefficient

First Majestic  Costco Wholesale

Very good diversification

The 3 months correlation between First and Costco is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding First Majestic Silver and Costco Wholesale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale and First Majestic 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 First Majestic Silver 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 has no effect on the direction of First Majestic i.e., First Majestic and Costco Wholesale go up and down completely randomly.

Pair Corralation between First Majestic and Costco Wholesale

Assuming the 90 days horizon First Majestic Silver is expected to under-perform the Costco Wholesale. But the stock apears to be less risky and, when comparing its historical volatility, First Majestic Silver is 2.8 times less risky than Costco Wholesale. The stock trades about -0.37 of its potential returns per unit of risk. The Costco Wholesale is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  1,777,375  in Costco Wholesale on September 2, 2024 and sell it today you would earn a total of  203,125  from holding Costco Wholesale or generate 11.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

First Majestic Silver  vs.  Costco Wholesale

First Majestic Silver

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Majestic Silver has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, First Majestic is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Costco Wholesale

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Costco Wholesale showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Majestic and Costco Wholesale

The main advantage of trading using opposite First Majestic and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Majestic 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 First Majestic Silver and Costco Wholesale 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.