Correlation Between Costco Wholesale and Amazon

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

Diversification Opportunities for Costco Wholesale and Amazon

0.87
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Costco and Amazon is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale and Amazon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Amazon Inc 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 Amazon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Amazon Inc has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Amazon go up and down completely randomly.

Pair Corralation between Costco Wholesale and Amazon

Given the investment horizon of 90 days Costco Wholesale is expected to generate 0.67 times more return on investment than Amazon. However, Costco Wholesale is 1.5 times less risky than Amazon. It trades about 0.02 of its potential returns per unit of risk. Amazon Inc is currently generating about -0.04 per unit of risk. If you would invest  44,833  in Costco Wholesale on June 28, 2022 and sell it today you would earn a total of  2,849  from holding Costco Wholesale or generate 6.35% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Costco Wholesale  vs.  Amazon Inc

 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

Amazon Inc 
Amazon Performance
3 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Amazon Inc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal basic indicators, Amazon may actually be approaching a critical reversion point that can send shares even higher in October 2022.

Amazon Price Channel

Costco Wholesale and Amazon Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Costco Wholesale and Amazon

The main advantage of trading using opposite Costco Wholesale and Amazon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Costco Wholesale position performs unexpectedly, Amazon 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 Amazon will offset losses from the drop in Amazon's long position.
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The idea behind Costco Wholesale and Amazon Inc 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.

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