Correlation Between AIR PRODCHEMICALS and Starbucks

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

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

Diversification Opportunities for AIR PRODCHEMICALS and Starbucks

0.81

Correlation Coefficient

AIR PRODCHEMICALS  Starbucks

Very poor diversification

The 3 months correlation between AIR and Starbucks is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding AIR PRODCHEMICALS and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks and AIR PRODCHEMICALS 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 AIR PRODCHEMICALS are associated (or correlated) with Starbucks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Starbucks has no effect on the direction of AIR PRODCHEMICALS i.e., AIR PRODCHEMICALS and Starbucks go up and down completely randomly.

Pair Corralation between AIR PRODCHEMICALS and Starbucks

Assuming the 90 days trading horizon AIR PRODCHEMICALS is expected to generate 1.11 times more return on investment than Starbucks. However, AIR PRODCHEMICALS is 1.11 times more volatile than Starbucks. It trades about 0.27 of its potential returns per unit of risk. Starbucks is currently generating about 0.14 per unit of risk. If you would invest  24,845  in AIR PRODCHEMICALS on August 30, 2024 and sell it today you would earn a total of  7,025  from holding AIR PRODCHEMICALS or generate 28.28% return on investment over 90 days.

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

AIR PRODCHEMICALS  vs.  Starbucks

AIR PRODCHEMICALS

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in AIR PRODCHEMICALS are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, AIR PRODCHEMICALS unveiled solid returns over the last few months and may actually be approaching a breakup point.

Starbucks

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Starbucks are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental drivers, Starbucks may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with AIR PRODCHEMICALS and Starbucks

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

The idea behind AIR PRODCHEMICALS and Starbucks 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.