Correlation Between Costco Wholesale and Starbucks

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

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

Diversification Opportunities for Costco Wholesale and Starbucks

0.75

Correlation Coefficient

Costco Wholesale  Starbucks

Poor diversification

The 3 months correlation between Costco and Starbucks is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Costco Wholesale and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks 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 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 Costco Wholesale i.e., Costco Wholesale and Starbucks go up and down completely randomly.

Pair Corralation between Costco Wholesale and Starbucks

Assuming the 90 days trading horizon Costco Wholesale is expected to generate 1.09 times more return on investment than Starbucks. However, Costco Wholesale is 1.09 times more volatile than Starbucks. It trades about 0.2 of its potential returns per unit of risk. Starbucks is currently generating about -0.2 per unit of risk. If you would invest  1,852,803  in Costco Wholesale on September 20, 2024 and sell it today you would earn a total of  120,530  from holding Costco Wholesale or generate 6.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Costco Wholesale  vs.  Starbucks

Costco Wholesale

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Costco Wholesale are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Costco Wholesale showed solid returns over the last few months and may actually be approaching a breakup point.

Starbucks

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Starbucks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Starbucks is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Costco Wholesale and Starbucks

The main advantage of trading using opposite Costco Wholesale and Starbucks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Costco Wholesale 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 Costco Wholesale 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.