Correlation Between GM and Starbucks CDR

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

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

Diversification Opportunities for GM and Starbucks CDR

0.51

Correlation Coefficient

GM  Starbucks CDR

Very weak diversification

The 3 months correlation between GM and Starbucks is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding General Motors and Starbucks CDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks CDR and GM 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 General Motors 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 GM i.e., GM and Starbucks CDR go up and down completely randomly.

Pair Corralation between GM and Starbucks CDR

Allowing for the 90-day total investment horizon General Motors is expected to under-perform the Starbucks CDR. In addition to that, GM is 1.52 times more volatile than Starbucks CDR. It trades about -0.03 of its total potential returns per unit of risk. Starbucks CDR is currently generating about -0.01 per unit of volatility. If you would invest  2,759  in Starbucks CDR on October 22, 2024 and sell it today you would lose (40.00) from holding Starbucks CDR or give up 1.45% of portfolio value over 90 days.

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

General Motors  vs.  Starbucks CDR

General Motors

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days General Motors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, GM is not utilizing all of its potentials. The current 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 GM and Starbucks CDR

The main advantage of trading using opposite GM and Starbucks CDR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GM 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 General Motors 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.