Correlation Between Bank of America and Costco Wholesale
Can any of the company-specific risk be diversified away by investing in both Bank of America 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 Bank of America and Costco Wholesale into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bank of America and Costco Wholesale, you can compare the effects of market volatilities on Bank of America 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 Bank of America with a short position of Costco Wholesale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bank of America and Costco Wholesale.
Diversification Opportunities for Bank of America and Costco Wholesale
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Bank and Costco is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Bank of America and Costco Wholesale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale and Bank of America 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 Bank of America 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 Bank of America i.e., Bank of America and Costco Wholesale go up and down completely randomly.
Pair Corralation between Bank of America and Costco Wholesale
Assuming the 90 days trading horizon Bank of America is expected to generate 1.6 times more return on investment than Costco Wholesale. However, Bank of America is 1.6 times more volatile than Costco Wholesale. It trades about 0.25 of its potential returns per unit of risk. Costco Wholesale is currently generating about 0.25 per unit of risk. If you would invest 83,850 in Bank of America on August 24, 2024 and sell it today you would earn a total of 11,850 from holding Bank of America or generate 14.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Bank of America vs. Costco Wholesale
Performance |
| Timeline |
| Bank of America |
| Costco Wholesale |
Bank of America and Costco Wholesale Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Bank of America and Costco Wholesale
The main advantage of trading using opposite Bank of America and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank of America 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.| Bank of America vs. New Oriental Education | Bank of America vs. Hoteles City Express | Bank of America vs. Prudential Financial | Bank of America vs. Deutsche Bank Aktiengesellschaft |
| Costco Wholesale vs. Grupo Sports World | Costco Wholesale vs. Burlington Stores | Costco Wholesale vs. Capital One Financial | Costco Wholesale vs. Genworth Financial |
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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.
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