Correlation Between GMS and Starbucks
Can any of the company-specific risk be diversified away by investing in both GMS 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 GMS and Starbucks into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between GMS Inc and Starbucks, you can compare the effects of market volatilities on GMS 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 GMS with a short position of Starbucks. Check out your portfolio center. Please also check ongoing floating volatility patterns of GMS and Starbucks.
Diversification Opportunities for GMS and Starbucks
Poor diversification
The 3 months correlation between GMS and Starbucks is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding GMS Inc and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks and GMS 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 GMS Inc 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 GMS i.e., GMS and Starbucks go up and down completely randomly.
Pair Corralation between GMS and Starbucks
Considering the 90-day investment horizon GMS Inc is expected to generate 0.79 times more return on investment than Starbucks. However, GMS Inc is 1.27 times less risky than Starbucks. It trades about 0.09 of its potential returns per unit of risk. Starbucks is currently generating about 0.02 per unit of risk. If you would invest 7,212 in GMS Inc on September 4, 2024 and sell it today you would earn a total of 3,056 from holding GMS Inc or generate 42.37% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
GMS Inc vs. Starbucks
Performance |
| Timeline |
| GMS Inc |
| Starbucks |
GMS and Starbucks Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with GMS and Starbucks
The main advantage of trading using opposite GMS and Starbucks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GMS 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.| GMS vs. Quanex Building Products | GMS vs. Apogee Enterprises | GMS vs. Azek Company | GMS vs. Beacon Roofing Supply |
| Starbucks vs. Hyatt Hotels | Starbucks vs. Smart Share Global | Starbucks vs. Sweetgreen | Starbucks vs. Wyndham Hotels Resorts |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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