Correlation Between PENN NATL and Starbucks

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

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

Diversification Opportunities for PENN NATL and Starbucks

0.69

Correlation Coefficient

PENN NATL  Starbucks

Poor diversification

The 3 months correlation between PENN and Starbucks is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding PENN NATL GAMING and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks and PENN NATL 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 PENN NATL GAMING 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 PENN NATL i.e., PENN NATL and Starbucks go up and down completely randomly.

Pair Corralation between PENN NATL and Starbucks

Assuming the 90 days trading horizon PENN NATL GAMING is expected to under-perform the Starbucks. In addition to that, PENN NATL is 1.58 times more volatile than Starbucks. It trades about -0.05 of its total potential returns per unit of risk. Starbucks is currently generating about 0.07 per unit of volatility. If you would invest  8,430  in Starbucks on December 21, 2024 and sell it today you would earn a total of  591.00  from holding Starbucks or generate 7.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

PENN NATL GAMING  vs.  Starbucks

PENN NATL GAMING

Risk-Adjusted Performance

Very Weak

Over the last 90 days PENN NATL GAMING has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Starbucks

Risk-Adjusted Performance

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 unsteady basic indicators, Starbucks may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with PENN NATL and Starbucks

The main advantage of trading using opposite PENN NATL and Starbucks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PENN NATL 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 PENN NATL GAMING 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.