Correlation Between Good Times and Starbucks

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

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

Diversification Opportunities for Good Times and Starbucks

-0.14

Correlation Coefficient

Good Times  Starbucks

Good diversification

The 3 months correlation between Good and Starbucks is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Good Times Restaurants and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks and Good Times 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 Good Times Restaurants 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 Good Times i.e., Good Times and Starbucks go up and down completely randomly.

Pair Corralation between Good Times and Starbucks

Given the investment horizon of 90 days Good Times Restaurants is expected to under-perform the Starbucks. In addition to that, Good Times is 1.19 times more volatile than Starbucks. It trades about -0.06 of its total potential returns per unit of risk. Starbucks is currently generating about 0.13 per unit of volatility. If you would invest  10,016  in Starbucks on December 4, 2024 and sell it today you would earn a total of  1,290  from holding Starbucks or generate 12.88% return on investment over 90 days.

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

Good Times Restaurants  vs.  Starbucks

Good Times Restaurants

Risk-Adjusted Performance

Very Weak

Over the last 90 days Good Times Restaurants has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Starbucks

Risk-Adjusted Performance

OK

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

Pair Trading with Good Times and Starbucks

The main advantage of trading using opposite Good Times and Starbucks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Good Times 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 Good Times Restaurants 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.