Correlation Between Costco Wholesale and Algonquin Power

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Can any of the company-specific risk be diversified away by investing in both Costco Wholesale and Algonquin Power 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 Algonquin Power into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Costco Wholesale and Algonquin Power Utilities, you can compare the effects of market volatilities on Costco Wholesale and Algonquin Power 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 Algonquin Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Costco Wholesale and Algonquin Power.

Diversification Opportunities for Costco Wholesale and Algonquin Power

0.53
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Costco and Algonquin is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale and Algonquin Power Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algonquin Power Utilities 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 Algonquin Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algonquin Power Utilities has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Algonquin Power go up and down completely randomly.

Pair Corralation between Costco Wholesale and Algonquin Power

Given the investment horizon of 90 days Costco Wholesale is expected to generate 2.15 times more return on investment than Algonquin Power. However, Costco Wholesale is 2.15 times more volatile than Algonquin Power Utilities. It trades about 0.05 of its potential returns per unit of risk. Algonquin Power Utilities is currently generating about 0.01 per unit of risk. If you would invest  34,645  in Costco Wholesale on June 28, 2022 and sell it today you would earn a total of  13,037  from holding Costco Wholesale or generate 37.63% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Costco Wholesale  vs.  Algonquin Power Utilities

 Performance (%) 
       Timeline  
Costco Wholesale 
Costco Performance
1 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Costco Wholesale is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Costco Price Channel

Algonquin Power Utilities 
Algonquin Performance
0 of 100
Over the last 90 days Algonquin Power Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Algonquin Power is not utilizing all of its potentials. The new stock price disturbance, may contribute to short-term losses for the investors.

Algonquin Price Channel

Costco Wholesale and Algonquin Power Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Costco Wholesale and Algonquin Power

The main advantage of trading using opposite Costco Wholesale and Algonquin Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Costco Wholesale position performs unexpectedly, Algonquin Power 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 Algonquin Power will offset losses from the drop in Algonquin Power's long position.
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The idea behind Costco Wholesale and Algonquin Power Utilities pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.

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