Correlation Between Economic Investment and Starbucks CDR

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

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

Diversification Opportunities for Economic Investment and Starbucks CDR

0.65

Correlation Coefficient

Economic Investment  Starbucks CDR

Poor diversification

The 3 months correlation between Economic and Starbucks is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Economic Investment Trust and Starbucks CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks CDR and Economic Investment 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 Economic Investment Trust are associated (or correlated) with Starbucks CDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Starbucks CDR has no effect on the direction of Economic Investment i.e., Economic Investment and Starbucks CDR go up and down completely randomly.

Pair Corralation between Economic Investment and Starbucks CDR

Assuming the 90 days trading horizon Economic Investment Trust is expected to generate 0.45 times more return on investment than Starbucks CDR. However, Economic Investment Trust is 2.21 times less risky than Starbucks CDR. It trades about 0.09 of its potential returns per unit of risk. Starbucks CDR is currently generating about 0.0 per unit of risk. If you would invest  11,522  in Economic Investment Trust on October 7, 2024 and sell it today you would earn a total of  5,197  from holding Economic Investment Trust or generate 45.11% return on investment over 90 days.

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

Economic Investment Trust  vs.  Starbucks CDR

Economic Investment Trust

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Economic Investment Trust are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Economic Investment is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Starbucks CDR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Starbucks CDR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Starbucks CDR is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Economic Investment and Starbucks CDR

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

The idea behind Economic Investment Trust and Starbucks CDR 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.