Correlation Between Amazon and Costco Wholesale

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

Diversification Opportunities for Amazon and Costco Wholesale

-0.04
  Correlation Coefficient

Good diversification

The 3 months correlation between Amazon and Costco is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Amazon Inc and Costco Wholesale Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale Corp and Amazon 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 Amazon Inc 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 Corp has no effect on the direction of Amazon i.e., Amazon and Costco Wholesale go up and down completely randomly.

Pair Corralation between Amazon and Costco Wholesale

Given the investment horizon of 90 days Amazon Inc is expected to under-perform the Costco Wholesale. In addition to that, Amazon is 1.54 times more volatile than Costco Wholesale Corp. It trades about -0.03 of its total potential returns per unit of risk. Costco Wholesale Corp is currently generating about 0.06 per unit of volatility. If you would invest  36,979  in Costco Wholesale Corp on September 2, 2022 and sell it today you would earn a total of  16,946  from holding Costco Wholesale Corp or generate 45.83% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Amazon Inc  vs.  Costco Wholesale Corp

 Performance (%) 
       Timeline  
Amazon Inc 
Amazon Performance
0 of 100
Over the last 90 days Amazon Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in January 2023. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Amazon Price Channel

Costco Wholesale Corp 
Costco Performance
0 of 100
Over the last 90 days Costco Wholesale Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Costco Wholesale is not utilizing all of its potentials. The new stock price uproar, may contribute to short-horizon losses for the private investors.

Costco Price Channel

Amazon and Costco Wholesale Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Amazon and Costco Wholesale

The main advantage of trading using opposite Amazon and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amazon 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.
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The idea behind Amazon Inc and Costco Wholesale Corp 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..

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