Correlation Between Rocket Internet and Costco Wholesale
Can any of the company-specific risk be diversified away by investing in both Rocket Internet 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 Rocket Internet and Costco Wholesale into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rocket Internet SE and Costco Wholesale, you can compare the effects of market volatilities on Rocket Internet 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 Rocket Internet with a short position of Costco Wholesale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rocket Internet and Costco Wholesale.
Diversification Opportunities for Rocket Internet and Costco Wholesale
0.32 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Rocket and Costco is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Rocket Internet SE and Costco Wholesale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale and Rocket Internet 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 Rocket Internet SE 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 Rocket Internet i.e., Rocket Internet and Costco Wholesale go up and down completely randomly.
Pair Corralation between Rocket Internet and Costco Wholesale
Assuming the 90 days trading horizon Rocket Internet is expected to generate 1.96 times less return on investment than Costco Wholesale. In addition to that, Rocket Internet is 1.11 times more volatile than Costco Wholesale. It trades about 0.08 of its total potential returns per unit of risk. Costco Wholesale is currently generating about 0.17 per unit of volatility. If you would invest 80,850 in Costco Wholesale on November 2, 2024 and sell it today you would earn a total of 13,480 from holding Costco Wholesale or generate 16.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Rocket Internet SE vs. Costco Wholesale
Performance |
| Timeline |
| Rocket Internet SE |
| Costco Wholesale |
Rocket Internet and Costco Wholesale Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rocket Internet and Costco Wholesale
The main advantage of trading using opposite Rocket Internet and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rocket Internet 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.The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Rocket Internet as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Rocket Internet's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Rocket Internet's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Rocket Internet SE.
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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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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