Correlation Between Costco Wholesale and Big Lots

Can any of the company-specific risk be diversified away by investing in both Costco Wholesale and Big Lots 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 Big Lots 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 Big Lots, you can compare the effects of market volatilities on Costco Wholesale and Big Lots 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 Big Lots. Check out your portfolio center. Please also check ongoing floating volatility patterns of Costco Wholesale and Big Lots.

Diversification Opportunities for Costco Wholesale and Big Lots

0.19

Correlation Coefficient

Costco Wholesale  Big Lots

Average diversification

The 3 months correlation between Costco and Big is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and Big Lots in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big Lots 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 Big Lots. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big Lots has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and Big Lots go up and down completely randomly.

Pair Corralation between Costco Wholesale and Big Lots

Given the investment horizon of 90 days Costco Wholesale Corp is expected to generate 0.22 times more return on investment than Big Lots. However, Costco Wholesale Corp is 4.62 times less risky than Big Lots. It trades about 0.25 of its potential returns per unit of risk. Big Lots is currently generating about -0.04 per unit of risk. If you would invest  71,258  in Costco Wholesale Corp on February 5, 2024 and sell it today you would earn a total of  3,132  from holding Costco Wholesale Corp or generate 4.4% return on investment over 90 days.

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

Costco Wholesale Corp  vs.  Big Lots

Costco Wholesale Corp

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale Corp are ranked lower than 4 (%) 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.

Big Lots

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Big Lots has generated negative risk-adjusted returns adding no value to investors with long positions. Despite sluggish performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Costco Wholesale and Big Lots

The main advantage of trading using opposite Costco Wholesale and Big Lots positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Costco Wholesale position performs unexpectedly, Big Lots 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 Big Lots will offset losses from the drop in Big Lots' long position.

The idea behind Costco Wholesale Corp and Big Lots 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.