Correlation Between Ultra Clean and Costco Wholesale

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

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

Diversification Opportunities for Ultra Clean and Costco Wholesale

-0.45

Correlation Coefficient

Ultra Clean  Costco Wholesale

Very good diversification

The 3 months correlation between Ultra and Costco is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Clean Holdings and Costco Wholesale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale and Ultra Clean 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 Ultra Clean Holdings 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 Ultra Clean i.e., Ultra Clean and Costco Wholesale go up and down completely randomly.

Pair Corralation between Ultra Clean and Costco Wholesale

Assuming the 90 days horizon Ultra Clean Holdings is expected to under-perform the Costco Wholesale. In addition to that, Ultra Clean is 2.32 times more volatile than Costco Wholesale. It trades about -0.06 of its total potential returns per unit of risk. Costco Wholesale is currently generating about -0.06 per unit of volatility. If you would invest  92,900  in Costco Wholesale on October 1, 2024 and sell it today you would lose (1,200) from holding Costco Wholesale or give up 1.29% of portfolio value over 90 days.

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

Ultra Clean Holdings  vs.  Costco Wholesale

Ultra Clean Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ultra Clean Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 nearly fragile basic indicators, Costco Wholesale reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ultra Clean and Costco Wholesale

The main advantage of trading using opposite Ultra Clean and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ultra Clean 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 Ultra Clean Holdings 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.