Correlation Between Capital One and Starbucks
Can any of the company-specific risk be diversified away by investing in both Capital One 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 Capital One and Starbucks into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Capital One Financial and Starbucks, you can compare the effects of market volatilities on Capital One 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 Capital One with a short position of Starbucks. Check out your portfolio center. Please also check ongoing floating volatility patterns of Capital One and Starbucks.
Diversification Opportunities for Capital One and Starbucks
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Capital and Starbucks is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Capital One Financial and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks and Capital One 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 Capital One Financial 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 Capital One i.e., Capital One and Starbucks go up and down completely randomly.
Pair Corralation between Capital One and Starbucks
Assuming the 90 days trading horizon Capital One Financial is expected to generate 0.86 times more return on investment than Starbucks. However, Capital One Financial is 1.16 times less risky than Starbucks. It trades about -0.03 of its potential returns per unit of risk. Starbucks is currently generating about -0.43 per unit of risk. If you would invest 382,986 in Capital One Financial on September 26, 2024 and sell it today you would lose (3,534) from holding Capital One Financial or give up 0.92% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Capital One Financial vs. Starbucks
Performance |
Timeline |
Capital One Financial |
Starbucks |
Capital One and Starbucks Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Capital One and Starbucks
The main advantage of trading using opposite Capital One and Starbucks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Capital One 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.Capital One vs. Cognizant Technology Solutions | Capital One vs. Monster Beverage Corp | Capital One vs. Costco Wholesale | Capital One vs. Taiwan Semiconductor Manufacturing |
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Check out your portfolio center.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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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