Correlation Between Starbucks and Alphabet
Can any of the company-specific risk be diversified away by investing in both Starbucks and Alphabet 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 Starbucks and Alphabet into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Starbucks and Alphabet Inc Class A, you can compare the effects of market volatilities on Starbucks and Alphabet 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 Starbucks with a short position of Alphabet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Starbucks and Alphabet.
Diversification Opportunities for Starbucks and Alphabet
Poor diversification
The 3 months correlation between Starbucks and Alphabet is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Starbucks and Alphabet Inc Class A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet Class A and Starbucks 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 Starbucks are associated (or correlated) with Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet Class A has no effect on the direction of Starbucks i.e., Starbucks and Alphabet go up and down completely randomly.
Pair Corralation between Starbucks and Alphabet
Assuming the 90 days trading horizon Starbucks is expected to generate 1.04 times more return on investment than Alphabet. However, Starbucks is 1.04 times more volatile than Alphabet Inc Class A. It trades about 0.17 of its potential returns per unit of risk. Alphabet Inc Class A is currently generating about -0.02 per unit of risk. If you would invest 195,040 in Starbucks on August 31, 2024 and sell it today you would earn a total of 14,260 from holding Starbucks or generate 7.31% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Starbucks vs. Alphabet Inc Class A
Performance |
| Timeline |
| Starbucks |
| Alphabet Class A |
Starbucks and Alphabet Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Starbucks and Alphabet
The main advantage of trading using opposite Starbucks and Alphabet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Starbucks position performs unexpectedly, Alphabet 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 Alphabet will offset losses from the drop in Alphabet's long position.| Starbucks vs. Micron Technology | Starbucks vs. McEwen Mining | Starbucks vs. Lloyds Banking Group | Starbucks vs. Verizon Communications |
| Alphabet vs. Samsung Electronics Co | Alphabet vs. United States Steel | Alphabet vs. Cognizant Technology Solutions | Alphabet vs. DXC Technology |
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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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