Correlation Between Citizens and Starbucks

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

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

Diversification Opportunities for Citizens and Starbucks

0.48

Correlation Coefficient

Citizens  Starbucks

Very weak diversification

The 3 months correlation between Citizens and Starbucks is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Citizens and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks and Citizens 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 Citizens 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 Citizens i.e., Citizens and Starbucks go up and down completely randomly.

Pair Corralation between Citizens and Starbucks

Considering the 90-day investment horizon Citizens is expected to generate 1.49 times more return on investment than Starbucks. However, Citizens is 1.49 times more volatile than Starbucks. It trades about 0.23 of its potential returns per unit of risk. Starbucks is currently generating about 0.13 per unit of risk. If you would invest  260.00  in Citizens on August 8, 2024 and sell it today you would earn a total of  235.00  from holding Citizens or generate 90.38% return on investment over 90 days.

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

Citizens  vs.  Starbucks

Citizens

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Citizens are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, Citizens sustained solid returns over the last few months and may actually be approaching a breakup point.

Starbucks

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Starbucks are ranked lower than 10 (%) 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 Citizens and Starbucks

The main advantage of trading using opposite Citizens and Starbucks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citizens 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 Citizens 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.