Correlation Between Ross Stores and Starbucks

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

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

Diversification Opportunities for Ross Stores and Starbucks

-0.25

Correlation Coefficient

Ross Stores  Starbucks

Very good diversification

The 3 months correlation between Ross and Starbucks is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Ross Stores and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks and Ross Stores 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 Ross Stores 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 Ross Stores i.e., Ross Stores and Starbucks go up and down completely randomly.

Pair Corralation between Ross Stores and Starbucks

Assuming the 90 days trading horizon Ross Stores is expected to under-perform the Starbucks. But the stock apears to be less risky and, when comparing its historical volatility, Ross Stores is 1.06 times less risky than Starbucks. The stock trades about -0.24 of its potential returns per unit of risk. The Starbucks is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  56,524  in Starbucks on December 25, 2024 and sell it today you would lose (1,483) from holding Starbucks or give up 2.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

Ross Stores  vs.  Starbucks

Ross Stores

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ross Stores has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Starbucks

Risk-Adjusted Performance

Very Weak

Over the last 90 days Starbucks has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Starbucks is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ross Stores and Starbucks

The main advantage of trading using opposite Ross Stores and Starbucks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ross Stores 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 Ross Stores 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.