Correlation Between Big Lots and Costco Wholesale

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

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

Diversification Opportunities for Big Lots and Costco Wholesale

0.13

Correlation Coefficient

Big Lots  Costco Wholesale

Average diversification

The 3 months correlation between Big and Costco is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Big Lots 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 Big Lots 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 Big Lots 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 Big Lots i.e., Big Lots and Costco Wholesale go up and down completely randomly.

Pair Corralation between Big Lots and Costco Wholesale

Considering the 90-day investment horizon Big Lots is expected to under-perform the Costco Wholesale. In addition to that, Big Lots is 4.54 times more volatile than Costco Wholesale Corp. It trades about 0.0 of its total potential returns per unit of risk. Costco Wholesale Corp is currently generating about 0.31 per unit of volatility. If you would invest  70,375  in Costco Wholesale Corp on February 4, 2024 and sell it today you would earn a total of  4,015  from holding Costco Wholesale Corp or generate 5.71% return on investment over 90 days.

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

Big Lots  vs.  Costco Wholesale Corp

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 uncertain 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.

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 newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Big Lots and Costco Wholesale

The main advantage of trading using opposite Big Lots and Costco Wholesale positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big Lots 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 Big Lots 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.