Correlation Between Big Lots and Costco Wholesale

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

Diversification Opportunities for Big Lots and Costco Wholesale

0.55
  Correlation Coefficient

Very weak diversification

The 1 month correlation between Big Lots and Costco is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Big Lots and Costco Wholesale in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Costco Wholesale and Big Lots 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 Big Lots 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 Big Lots i.e., Big Lots and Costco Wholesale go up and down completely randomly.

Pair Corralation between Big Lots and Costco Wholesale

Considering the 90-day investment horizon Big Lots is expected to generate 3.61 times more return on investment than Costco Wholesale. However, Big Lots is 3.61 times more volatile than Costco Wholesale. It trades about 0.18 of its potential returns per unit of risk. Costco Wholesale is currently generating about 0.25 per unit of risk. If you would invest  2,254  in Big Lots on May 20, 2022 and sell it today you would earn a total of  385.00  from holding Big Lots or generate 17.08% return on investment over 90 days.
Time Period1 Month [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Big Lots  vs.  Costco Wholesale

 Performance (%) 
       Timeline  
Big Lots 
Big Lots Performance
13 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Big Lots are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting forward indicators, Big Lots exhibited solid returns over the last few months and may actually be approaching a breakup point.

Big Lots Price Channel

Costco Wholesale 
Costco Performance
19 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Costco Wholesale unveiled solid returns over the last few months and may actually be approaching a breakup point.

Costco Price Channel

Big Lots and Costco Wholesale Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Big Lots and Costco Wholesale

The main advantage of trading using opposite Big Lots and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big Lots 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 idea behind Big Lots and Costco Wholesale 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.
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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.

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