Correlation Between Leons Furniture and Costco Wholesale

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

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

Diversification Opportunities for Leons Furniture and Costco Wholesale

-0.69

Correlation Coefficient

Leons Furniture  Costco Wholesale

Excellent diversification

The 3 months correlation between Leons and Costco is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Leons Furniture Limited 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 Leons Furniture 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 Leons Furniture Limited 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 Leons Furniture i.e., Leons Furniture and Costco Wholesale go up and down completely randomly.

Pair Corralation between Leons Furniture and Costco Wholesale

Assuming the 90 days trading horizon Leons Furniture is expected to generate 1.29 times less return on investment than Costco Wholesale. In addition to that, Leons Furniture is 1.82 times more volatile than Costco Wholesale Corp. It trades about 0.05 of its total potential returns per unit of risk. Costco Wholesale Corp is currently generating about 0.12 per unit of volatility. If you would invest  2,365  in Costco Wholesale Corp on September 27, 2024 and sell it today you would earn a total of  2,073  from holding Costco Wholesale Corp or generate 87.65% return on investment over 90 days.

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

Leons Furniture Limited  vs.  Costco Wholesale Corp

Leons Furniture

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Leons Furniture Limited 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 technical and fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Costco Wholesale Corp

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 9 (%) 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 Leons Furniture and Costco Wholesale

The main advantage of trading using opposite Leons Furniture and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Leons Furniture 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 Leons Furniture Limited 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.