Correlation Between Starbucks and Universal

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

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

Diversification Opportunities for Starbucks and Universal

0.27

Correlation Coefficient

Starbucks  Universal

Modest diversification

The 3 months correlation between Starbucks and Universal is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Starbucks and Universal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal 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 Universal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal has no effect on the direction of Starbucks i.e., Starbucks and Universal go up and down completely randomly.

Pair Corralation between Starbucks and Universal

Given the investment horizon of 90 days Starbucks is expected to generate 11.09 times less return on investment than Universal. In addition to that, Starbucks is 1.27 times more volatile than Universal. It trades about 0.0 of its total potential returns per unit of risk. Universal is currently generating about 0.02 per unit of volatility. If you would invest  4,876  in Universal on October 11, 2024 and sell it today you would earn a total of  317.00  from holding Universal or generate 6.5% return on investment over 90 days.

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

Starbucks  vs.  Universal

Starbucks

Risk-Adjusted Performance

0 of 100

Very 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.

Universal

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Universal are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Universal is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Starbucks and Universal

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

The idea behind Starbucks and Universal 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.