Correlation Between Microsoft Corp and Costco Wholesale

Can any of the company-specific risk be diversified away by investing in both Microsoft Corp 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 Microsoft Corp and Costco Wholesale into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Microsoft Corp CDR and Costco Wholesale Corp, you can compare the effects of market volatilities on Microsoft Corp 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 Microsoft Corp with a short position of Costco Wholesale. Check out your portfolio center. Please also check ongoing floating volatility patterns of Microsoft Corp and Costco Wholesale.

Diversification Opportunities for Microsoft Corp and Costco Wholesale

0.18

Correlation Coefficient

Microsoft Corp  Costco Wholesale

Average diversification

The 3 months correlation between Microsoft and Costco is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Microsoft Corp CDR 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 Microsoft Corp 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 Microsoft Corp CDR 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 Microsoft Corp i.e., Microsoft Corp and Costco Wholesale go up and down completely randomly.

Pair Corralation between Microsoft Corp and Costco Wholesale

Assuming the 90 days trading horizon Microsoft Corp is expected to generate 2.91 times less return on investment than Costco Wholesale. But when comparing it to its historical volatility, Microsoft Corp CDR is 1.15 times less risky than Costco Wholesale. It trades about 0.16 of its potential returns per unit of risk. Costco Wholesale Corp is currently generating about 0.4 of returns per unit of risk over similar time horizon. If you would invest  4,059  in Costco Wholesale Corp on September 1, 2024 and sell it today you would earn a total of  459.00  from holding Costco Wholesale Corp or generate 11.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Microsoft Corp CDR  vs.  Costco Wholesale Corp

Microsoft Corp CDR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Microsoft Corp CDR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Microsoft Corp is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Costco Wholesale Corp

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Costco Wholesale may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Microsoft Corp and Costco Wholesale

The main advantage of trading using opposite Microsoft Corp and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Microsoft Corp 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 Microsoft Corp CDR 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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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.