Correlation Between CARSALES and Starbucks

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

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

Diversification Opportunities for CARSALES and Starbucks

0.32

Correlation Coefficient

CARSALES  Starbucks

Weak diversification

The 3 months correlation between CARSALES and Starbucks is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding CARSALESCOM and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks and CARSALES 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 CARSALESCOM 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 CARSALES i.e., CARSALES and Starbucks go up and down completely randomly.

Pair Corralation between CARSALES and Starbucks

Assuming the 90 days trading horizon CARSALESCOM is expected to under-perform the Starbucks. But the stock apears to be less risky and, when comparing its historical volatility, CARSALESCOM is 1.06 times less risky than Starbucks. The stock trades about -0.1 of its potential returns per unit of risk. The Starbucks is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  8,733  in Starbucks on December 24, 2024 and sell it today you would earn a total of  208.00  from holding Starbucks or generate 2.38% return on investment over 90 days.

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

CARSALESCOM  vs.  Starbucks

CARSALESCOM

Risk-Adjusted Performance

Very Weak

Over the last 90 days CARSALESCOM has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Starbucks

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Starbucks are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Starbucks is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with CARSALES and Starbucks

The main advantage of trading using opposite CARSALES and Starbucks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CARSALES 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 CARSALESCOM 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.