Correlation Between Costco Wholesale and CSL

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

Diversification Opportunities for Costco Wholesale and CSL

0.47

Correlation Coefficient

Costco Wholesale  CSL

Very weak diversification

The 3 months correlation between Costco and CSL is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale Corp and CSL Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CSL Limited 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 CSL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CSL Limited has no effect on the direction of Costco Wholesale i.e., Costco Wholesale and CSL go up and down completely randomly.

Pair Corralation between Costco Wholesale and CSL

Assuming the 90 days trading horizon Costco Wholesale Corp is expected to under-perform the CSL. But the stock apears to be less risky and, when comparing its historical volatility, Costco Wholesale Corp is 1.49 times less risky than CSL. The stock trades about -0.06 of its potential returns per unit of risk. The CSL Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  13,272  in CSL Limited on April 20, 2025 and sell it today you would earn a total of  1,020  from holding CSL Limited or generate 7.69% return on investment over 90 days.

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

Costco Wholesale Corp  vs.  CSL Limited

Costco Wholesale Corp

Risk-Adjusted Performance

Very Weak

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 very healthy basic indicators, Costco Wholesale is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

CSL Limited

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CSL Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, CSL may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Costco Wholesale and CSL

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

The idea behind Costco Wholesale Corp and CSL Limited 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.