Correlation Between Starbucks and Texas Roadhouse

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

By analyzing existing cross correlation between Starbucks and Texas Roadhouse, you can compare the effects of market volatilities on Starbucks and Texas Roadhouse 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 Texas Roadhouse. Check out your portfolio center. Please also check ongoing floating volatility patterns of Starbucks and Texas Roadhouse.

Diversification Opportunities for Starbucks and Texas Roadhouse

0.79

Correlation Coefficient

Starbucks  Texas Roadhouse

Poor diversification

The 3 months correlation between Starbucks and Texas is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Starbucks and Texas Roadhouse in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Roadhouse 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 Texas Roadhouse. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Texas Roadhouse has no effect on the direction of Starbucks i.e., Starbucks and Texas Roadhouse go up and down completely randomly.

Pair Corralation between Starbucks and Texas Roadhouse

Given the investment horizon of 90 days Starbucks is expected to generate 1.14 times more return on investment than Texas Roadhouse. However, Starbucks is 1.14 times more volatile than Texas Roadhouse. It trades about 0.45 of its potential returns per unit of risk. Texas Roadhouse is currently generating about 0.06 per unit of risk. If you would invest  8,744  in Starbucks on October 24, 2024 and sell it today you would earn a total of  769.00  from holding Starbucks or generate 8.79% return on investment over 90 days.

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

Starbucks  vs.  Texas Roadhouse

Starbucks

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Starbucks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly 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.

Texas Roadhouse

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Roadhouse are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Texas Roadhouse is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Starbucks and Texas Roadhouse

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

The idea behind Starbucks and Texas Roadhouse 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.