Correlation Between First Watch and Starbucks
Can any of the company-specific risk be diversified away by investing in both First Watch 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 First Watch and Starbucks into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Watch Restaurant and Starbucks, you can compare the effects of market volatilities on First Watch 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 First Watch with a short position of Starbucks. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Watch and Starbucks.
Diversification Opportunities for First Watch and Starbucks
0.43 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between First and Starbucks is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding First Watch Restaurant and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks and First Watch 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 First Watch Restaurant 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 First Watch i.e., First Watch and Starbucks go up and down completely randomly.
Pair Corralation between First Watch and Starbucks
Given the investment horizon of 90 days First Watch Restaurant is expected to generate 1.26 times more return on investment than Starbucks. However, First Watch is 1.26 times more volatile than Starbucks. It trades about 0.03 of its potential returns per unit of risk. Starbucks is currently generating about 0.01 per unit of risk. If you would invest 1,418 in First Watch Restaurant on August 28, 2024 and sell it today you would earn a total of 448.00 from holding First Watch Restaurant or generate 31.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
First Watch Restaurant vs. Starbucks
Performance |
| Timeline |
| First Watch Restaurant |
| Starbucks |
First Watch and Starbucks Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Watch and Starbucks
The main advantage of trading using opposite First Watch and Starbucks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Watch 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.| First Watch vs. Dine Brands Global | First Watch vs. Bloomin Brands | First Watch vs. BJs Restaurants | First Watch vs. The Cheesecake Factory |
| Starbucks vs. Chipotle Mexican Grill | Starbucks vs. Dominos Pizza | Starbucks vs. Yum Brands | Starbucks vs. The Wendys Co |
Check out your portfolio center.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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.
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