Correlation Between Costco Wholesale and Home Depot
Can any of the company-specific risk be diversified away by investing in both Costco Wholesale and Home Depot 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 Home Depot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Costco Wholesale Corp and Home Depot, you can compare the effects of market volatilities on Costco Wholesale and Home Depot 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 Home Depot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Costco Wholesale and Home Depot.
Diversification Opportunities for Costco Wholesale and Home Depot
0.62 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Costco and Home is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and Home Depot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Home Depot 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 Corp are associated (or correlated) with Home Depot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Home Depot has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Home Depot go up and down completely randomly.
Pair Corralation between Costco Wholesale and Home Depot
Given the investment horizon of 90 days Costco Wholesale Corp is expected to generate 0.67 times more return on investment than Home Depot. However, Costco Wholesale Corp is 1.5 times less risky than Home Depot. It trades about -0.06 of its potential returns per unit of risk. Home Depot is currently generating about -0.45 per unit of risk. If you would invest 73,096 in Costco Wholesale Corp on January 25, 2024 and sell it today you would lose (828.00) from holding Costco Wholesale Corp or give up 1.13% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Costco Wholesale Corp vs. Home Depot
Performance |
| Timeline |
| Costco Wholesale Corp |
| Home Depot |
Costco Wholesale and Home Depot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Costco Wholesale and Home Depot
The main advantage of trading using opposite Costco Wholesale and Home Depot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Costco Wholesale position performs unexpectedly, Home Depot 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 Home Depot will offset losses from the drop in Home Depot's long position.| Costco Wholesale vs. Big Lots | Costco Wholesale vs. Aquagold International | Costco Wholesale vs. Thrivent High Yield | Costco Wholesale vs. Morningstar Unconstrained Allocation |
| Home Depot vs. Arhaus Inc | Home Depot vs. Haverty Furniture Companies | Home Depot vs. Kirklands | Home Depot vs. Live Ventures |
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 the Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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