Correlation Between Bread Financial and Costco Wholesale
Can any of the company-specific risk be diversified away by investing in both Bread Financial 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 Bread Financial and Costco Wholesale into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bread Financial Holdings and Costco Wholesale, you can compare the effects of market volatilities on Bread Financial 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 Bread Financial with a short position of Costco Wholesale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bread Financial and Costco Wholesale.
Diversification Opportunities for Bread Financial and Costco Wholesale
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Bread and Costco is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Bread Financial Holdings and Costco Wholesale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale and Bread Financial 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 Bread Financial 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 Bread Financial i.e., Bread Financial and Costco Wholesale go up and down completely randomly.
Pair Corralation between Bread Financial and Costco Wholesale
Assuming the 90 days trading horizon Bread Financial Holdings is expected to generate 2.83 times more return on investment than Costco Wholesale. However, Bread Financial is 2.83 times more volatile than Costco Wholesale. It trades about 0.2 of its potential returns per unit of risk. Costco Wholesale is currently generating about 0.3 per unit of risk. If you would invest 7,187 in Bread Financial Holdings on August 30, 2024 and sell it today you would earn a total of 1,318 from holding Bread Financial Holdings or generate 18.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.24% |
| Values | Daily Returns |
Bread Financial Holdings vs. Costco Wholesale
Performance |
| Timeline |
| Bread Financial Holdings |
| Costco Wholesale |
Bread Financial and Costco Wholesale Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bread Financial and Costco Wholesale
The main advantage of trading using opposite Bread Financial and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bread Financial 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.| Bread Financial vs. Sumitomo Mitsui Financial | Bread Financial vs. STMicroelectronics NV | Bread Financial vs. Electronic Arts | Bread Financial vs. Credit Acceptance |
| Costco Wholesale vs. Unity Software | Costco Wholesale vs. Dell Technologies | Costco Wholesale vs. Take Two Interactive Software | Costco Wholesale vs. GP Investments |
Check out your portfolio center.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.
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