Correlation Between COSTCO WHOLESALE and STMicroelectronics
Can any of the company-specific risk be diversified away by investing in both COSTCO WHOLESALE and STMicroelectronics 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 STMicroelectronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between COSTCO WHOLESALE CDR and STMicroelectronics NV, you can compare the effects of market volatilities on COSTCO WHOLESALE and STMicroelectronics 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 STMicroelectronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of COSTCO WHOLESALE and STMicroelectronics.
Diversification Opportunities for COSTCO WHOLESALE and STMicroelectronics
-0.19 | Correlation Coefficient |
Good diversification
The 3 months correlation between COSTCO and STMicroelectronics is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding COSTCO WHOLESALE CDR and STMicroelectronics NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STMicroelectronics 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 CDR are associated (or correlated) with STMicroelectronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STMicroelectronics has no effect on the direction of COSTCO WHOLESALE i.e., COSTCO WHOLESALE and STMicroelectronics go up and down completely randomly.
Pair Corralation between COSTCO WHOLESALE and STMicroelectronics
Assuming the 90 days trading horizon COSTCO WHOLESALE CDR is expected to generate 0.69 times more return on investment than STMicroelectronics. However, COSTCO WHOLESALE CDR is 1.45 times less risky than STMicroelectronics. It trades about 0.13 of its potential returns per unit of risk. STMicroelectronics NV is currently generating about -0.25 per unit of risk. If you would invest 2,800 in COSTCO WHOLESALE CDR on November 5, 2024 and sell it today you would earn a total of 140.00 from holding COSTCO WHOLESALE CDR or generate 5.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
COSTCO WHOLESALE CDR vs. STMicroelectronics NV
Performance |
| Timeline |
| COSTCO WHOLESALE CDR |
| STMicroelectronics |
COSTCO WHOLESALE and STMicroelectronics Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with COSTCO WHOLESALE and STMicroelectronics
The main advantage of trading using opposite COSTCO WHOLESALE and STMicroelectronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if COSTCO WHOLESALE position performs unexpectedly, STMicroelectronics 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 STMicroelectronics will offset losses from the drop in STMicroelectronics' long position.| COSTCO WHOLESALE vs. VULCAN MATERIALS | COSTCO WHOLESALE vs. Sumitomo Rubber Industries | COSTCO WHOLESALE vs. GOODYEAR T RUBBER | COSTCO WHOLESALE vs. CARDINAL HEALTH |
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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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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