Correlation Between Wal Mart and Costco Wholesale

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

Diversification Opportunities for Wal Mart and Costco Wholesale

0.09
  Correlation Coefficient

Significant diversification

The 3 months correlation between WMMVF and Costco is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Wal Mart De 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 Wal Mart 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 Wal Mart De 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 Wal Mart i.e., Wal Mart and Costco Wholesale go up and down completely randomly.

Pair Corralation between Wal Mart and Costco Wholesale

Assuming the 90 days horizon Wal Mart De is expected to generate 1.2 times more return on investment than Costco Wholesale. However, Wal Mart is 1.2 times more volatile than Costco Wholesale Corp. It trades about 0.11 of its potential returns per unit of risk. Costco Wholesale Corp is currently generating about -0.01 per unit of risk. If you would invest  344.00  in Wal Mart De on September 2, 2022 and sell it today you would earn a total of  52.00  from holding Wal Mart De or generate 15.12% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy98.41%
ValuesDaily Returns

Wal Mart De  vs.  Costco Wholesale Corp

 Performance (%) 
       Timeline  
Wal Mart De 
WMMVF Performance
8 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Wal Mart De are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Wal Mart exhibited solid returns over the last few months and may actually be approaching a breakup point.

WMMVF 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

Wal Mart and Costco Wholesale Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Wal Mart and Costco Wholesale

The main advantage of trading using opposite Wal Mart and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wal Mart 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 Wal Mart De 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 Price Transformation module to use Price Transformation models to analyze depth of different equity instruments across global markets.

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