Correlation Between Media and Starbucks

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

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

Diversification Opportunities for Media and Starbucks

0.47

Correlation Coefficient

Media  Starbucks

Very weak diversification

The 3 months correlation between Media and Starbucks is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Media and Games and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks and Media 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 Media and Games 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 Media i.e., Media and Starbucks go up and down completely randomly.

Pair Corralation between Media and Starbucks

Assuming the 90 days trading horizon Media and Games is expected to generate 2.12 times more return on investment than Starbucks. However, Media is 2.12 times more volatile than Starbucks. It trades about 0.05 of its potential returns per unit of risk. Starbucks is currently generating about 0.01 per unit of risk. If you would invest  167.00  in Media and Games on October 24, 2024 and sell it today you would earn a total of  141.00  from holding Media and Games or generate 84.43% return on investment over 90 days.

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

Media and Games  vs.  Starbucks

Media and Games

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Media and Games has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Media is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Starbucks

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Starbucks are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Starbucks may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Media and Starbucks

The main advantage of trading using opposite Media and Starbucks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Media 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 Media and Games 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.