Correlation Between Costco Wholesale and Bread Financial
Can any of the company-specific risk be diversified away by investing in both Costco Wholesale and Bread Financial 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 Costco Wholesale and Bread Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Costco Wholesale and Bread Financial Holdings, you can compare the effects of market volatilities on Costco Wholesale and Bread Financial 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 Costco Wholesale with a short position of Bread Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Costco Wholesale and Bread Financial.
Diversification Opportunities for Costco Wholesale and Bread Financial
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Costco and Bread is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale and Bread Financial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bread Financial Holdings and Costco Wholesale 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 Costco Wholesale are associated (or correlated) with Bread Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bread Financial Holdings has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Bread Financial go up and down completely randomly.
Pair Corralation between Costco Wholesale and Bread Financial
Assuming the 90 days trading horizon Costco Wholesale is expected to generate 1.86 times less return on investment than Bread Financial. But when comparing it to its historical volatility, Costco Wholesale is 2.83 times less risky than Bread Financial. It trades about 0.3 of its potential returns per unit of risk. Bread Financial Holdings is currently generating about 0.2 of returns per unit of risk over similar time horizon. 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 |
Costco Wholesale vs. Bread Financial Holdings
Performance |
| Timeline |
| Costco Wholesale |
| Bread Financial Holdings |
Costco Wholesale and Bread Financial Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Costco Wholesale and Bread Financial
The main advantage of trading using opposite Costco Wholesale and Bread Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Costco Wholesale position performs unexpectedly, Bread Financial 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 Bread Financial will offset losses from the drop in Bread Financial's long position.| Costco Wholesale vs. Unity Software | Costco Wholesale vs. Dell Technologies | Costco Wholesale vs. Take Two Interactive Software | Costco Wholesale vs. GP Investments |
| Bread Financial vs. Sumitomo Mitsui Financial | Bread Financial vs. STMicroelectronics NV | Bread Financial vs. Electronic Arts | Bread Financial vs. Credit Acceptance |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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