Correlation Between Dow Jones and Costco Wholesale
Can any of the company-specific risk be diversified away by investing in both Dow Jones 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 Dow Jones and Costco Wholesale into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Costco Wholesale, you can compare the effects of market volatilities on Dow Jones 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 Dow Jones with a short position of Costco Wholesale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Costco Wholesale.
Diversification Opportunities for Dow Jones and Costco Wholesale
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Dow and Costco is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Costco Wholesale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale and Dow Jones 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 Dow Jones Industrial 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 Dow Jones i.e., Dow Jones and Costco Wholesale go up and down completely randomly.
Pair Corralation between Dow Jones and Costco Wholesale
Assuming the 90 days trading horizon Dow Jones is expected to generate 2.66 times less return on investment than Costco Wholesale. But when comparing it to its historical volatility, Dow Jones Industrial is 1.9 times less risky than Costco Wholesale. It trades about 0.08 of its potential returns per unit of risk. Costco Wholesale is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 916,504 in Costco Wholesale on August 28, 2024 and sell it today you would earn a total of 1,019,996 from holding Costco Wholesale or generate 111.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Dow Jones Industrial vs. Costco Wholesale
Performance |
| Timeline |
Dow Jones and Costco Wholesale Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Costco Wholesale
Pair trading matchups for Costco Wholesale
Pair Trading with Dow Jones and Costco Wholesale
The main advantage of trading using opposite Dow Jones and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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.| Dow Jones vs. Meiwu Technology Co | Dow Jones vs. 17 Education Technology | Dow Jones vs. 51Talk Online Education | Dow Jones vs. Afya |
| Costco Wholesale vs. Hoteles City Express | Costco Wholesale vs. DXC Technology | Costco Wholesale vs. Verizon Communications | Costco Wholesale vs. Grupo Sports World |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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