Correlation Between Smart Share and Starbucks

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

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

Diversification Opportunities for Smart Share and Starbucks

0.21

Correlation Coefficient

Smart Share  Starbucks

Modest diversification

The 3 months correlation between Smart and Starbucks is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Smart Share Global and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks and Smart Share 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 Smart Share Global 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 Smart Share i.e., Smart Share and Starbucks go up and down completely randomly.

Pair Corralation between Smart Share and Starbucks

Allowing for the 90-day total investment horizon Smart Share Global is expected to generate 4.45 times more return on investment than Starbucks. However, Smart Share is 4.45 times more volatile than Starbucks. It trades about 0.14 of its potential returns per unit of risk. Starbucks is currently generating about 0.0 per unit of risk. If you would invest  53.00  in Smart Share Global on September 12, 2024 and sell it today you would earn a total of  23.00  from holding Smart Share Global or generate 43.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Smart Share Global  vs.  Starbucks

Smart Share Global

Risk-Adjusted Performance

10 of 100

OK

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

Starbucks

Risk-Adjusted Performance

0 of 100

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 Smart Share and Starbucks

The main advantage of trading using opposite Smart Share and Starbucks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smart Share 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 Smart Share Global 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.