Correlation Between Sweetgreen and Starbucks

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

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

Diversification Opportunities for Sweetgreen and Starbucks

-0.51

Correlation Coefficient

Sweetgreen  Starbucks

Excellent diversification

The 3 months correlation between Sweetgreen and Starbucks is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Sweetgreen and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks and Sweetgreen 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 Sweetgreen 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 Sweetgreen i.e., Sweetgreen and Starbucks go up and down completely randomly.

Pair Corralation between Sweetgreen and Starbucks

Allowing for the 90-day total investment horizon Sweetgreen is expected to under-perform the Starbucks. In addition to that, Sweetgreen is 2.76 times more volatile than Starbucks. It trades about -0.18 of its total potential returns per unit of risk. Starbucks is currently generating about 0.39 per unit of volatility. If you would invest  9,167  in Starbucks on December 2, 2024 and sell it today you would earn a total of  2,414  from holding Starbucks or generate 26.33% return on investment over 90 days.

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

Sweetgreen  vs.  Starbucks

Sweetgreen

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sweetgreen has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Starbucks

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Starbucks are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Starbucks showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sweetgreen and Starbucks

The main advantage of trading using opposite Sweetgreen and Starbucks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sweetgreen 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 Sweetgreen 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.