Correlation Between Costco Wholesale and Bank of America
Can any of the company-specific risk be diversified away by investing in both Costco Wholesale and Bank of America 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 Bank of America into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Costco Wholesale Corp and Verizon Communications, you can compare the effects of market volatilities on Costco Wholesale and Bank of America 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 Bank of America. Check out your portfolio center. Please also check ongoing floating volatility patterns of Costco Wholesale and Bank of America.
Diversification Opportunities for Costco Wholesale and Bank of America
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Costco and Bank is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and Verizon Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verizon Communications 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 Corp are associated (or correlated) with Bank of America. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verizon Communications has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Bank of America go up and down completely randomly.
Pair Corralation between Costco Wholesale and Bank of America
Assuming the 90 days trading horizon Costco Wholesale Corp is expected to under-perform the Bank of America. But the stock apears to be less risky and, when comparing its historical volatility, Costco Wholesale Corp is 1.11 times less risky than Bank of America. The stock trades about -0.02 of its potential returns per unit of risk. The Verizon Communications is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 3,719 in Verizon Communications on December 12, 2024 and sell it today you would earn a total of 198.00 from holding Verizon Communications or generate 5.32% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Costco Wholesale Corp vs. Verizon Communications
Performance |
| Timeline |
| Costco Wholesale Corp |
| Verizon Communications |
Costco Wholesale and Bank of America Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Costco Wholesale and Bank of America
The main advantage of trading using opposite Costco Wholesale and Bank of America positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Costco Wholesale position performs unexpectedly, Bank of America 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 Bank of America will offset losses from the drop in Bank of America's long position.| Costco Wholesale vs. Perseus Mining Limited | ||
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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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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