Correlation Between Costco Wholesale and Erie Indemnity

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

Diversification Opportunities for Costco Wholesale and Erie Indemnity

0.23
  Correlation Coefficient

Modest diversification

The 3 months correlation between Costco and Erie Indemnity is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale and Erie Indemnity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erie Indemnity 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 Erie Indemnity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Erie Indemnity has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Erie Indemnity go up and down completely randomly.

Pair Corralation between Costco Wholesale and Erie Indemnity

Given the investment horizon of 90 days Costco Wholesale is expected to generate 1.02 times more return on investment than Erie Indemnity. However, Costco Wholesale is 1.02 times more volatile than Erie Indemnity. It trades about 0.04 of its potential returns per unit of risk. Erie Indemnity is currently generating about 0.01 per unit of risk. If you would invest  36,398  in Costco Wholesale on July 2, 2022 and sell it today you would earn a total of  10,829  from holding Costco Wholesale or generate 29.75% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Costco Wholesale  vs.  Erie Indemnity

 Performance (%) 
       Timeline  
Costco Wholesale 
Costco Performance
0 of 100
Over the last 90 days Costco Wholesale 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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Costco Price Channel

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

Erie Indemnity Price Channel

Costco Wholesale and Erie Indemnity Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Costco Wholesale and Erie Indemnity

The main advantage of trading using opposite Costco Wholesale and Erie Indemnity positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Costco Wholesale position performs unexpectedly, Erie Indemnity 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 Erie Indemnity will offset losses from the drop in Erie Indemnity's long position.
Costco Wholesale vs. Amazon Inc
The idea behind Costco Wholesale and Erie Indemnity 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.
Erie Indemnity vs. Amazon Inc
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 Bond Directory module to find actively traded corporate debentures issued by US companies.

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