Correlation Between Starbucks and Asia Pacific

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

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

Diversification Opportunities for Starbucks and Asia Pacific

0.63

Correlation Coefficient

Starbucks  Asia Pacific

Poor diversification

The 3 months correlation between Starbucks and Asia is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Starbucks and Asia Pacific Satellite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asia Pacific Satellite and Starbucks 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 Starbucks are associated (or correlated) with Asia Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asia Pacific Satellite has no effect on the direction of Starbucks i.e., Starbucks and Asia Pacific go up and down completely randomly.

Pair Corralation between Starbucks and Asia Pacific

Assuming the 90 days trading horizon Starbucks is expected to generate 0.78 times more return on investment than Asia Pacific. However, Starbucks is 1.28 times less risky than Asia Pacific. It trades about 0.1 of its potential returns per unit of risk. Asia Pacific Satellite is currently generating about -0.01 per unit of risk. If you would invest  174,044  in Starbucks on December 23, 2024 and sell it today you would earn a total of  21,442  from holding Starbucks or generate 12.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	93.55%
Values	Daily Returns

Starbucks  vs.  Asia Pacific Satellite

Starbucks

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Starbucks are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Starbucks showed solid returns over the last few months and may actually be approaching a breakup point.

Asia Pacific Satellite

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Starbucks and Asia Pacific

The main advantage of trading using opposite Starbucks and Asia Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Starbucks position performs unexpectedly, Asia Pacific 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 Asia Pacific will offset losses from the drop in Asia Pacific's long position.

The idea behind Starbucks and Asia Pacific Satellite 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.

Check out your portfolio center.

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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .