Correlation Between Starbucks and American Hotel
Can any of the company-specific risk be diversified away by investing in both Starbucks and American Hotel 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 American Hotel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Starbucks and American Hotel Income, you can compare the effects of market volatilities on Starbucks and American Hotel 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 American Hotel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Starbucks and American Hotel.
Diversification Opportunities for Starbucks and American Hotel
0.23 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Starbucks and American is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Starbucks and American Hotel Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Hotel Income 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 American Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Hotel Income has no effect on the direction of Starbucks i.e., Starbucks and American Hotel go up and down completely randomly.
Pair Corralation between Starbucks and American Hotel
Given the investment horizon of 90 days Starbucks is expected to generate 1.01 times less return on investment than American Hotel. But when comparing it to its historical volatility, Starbucks is 2.7 times less risky than American Hotel. It trades about 0.39 of its potential returns per unit of risk. American Hotel Income is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 45.00 in American Hotel Income on November 5, 2024 and sell it today you would earn a total of 6.00 from holding American Hotel Income or generate 13.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Starbucks vs. American Hotel Income
Performance |
| Timeline |
| Starbucks |
| American Hotel Income |
Starbucks and American Hotel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Starbucks and American Hotel
The main advantage of trading using opposite Starbucks and American Hotel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Starbucks position performs unexpectedly, American Hotel 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 American Hotel will offset losses from the drop in American Hotel's long position.| Starbucks vs. Chipotle Mexican Grill | Starbucks vs. Dominos Pizza Common | Starbucks vs. Yum Brands | Starbucks vs. The Wendys Co |
| American Hotel vs. Ashford Hospitality Trust | American Hotel vs. Ashford Hospitality Trust | American Hotel vs. Braemar Hotels Resorts | American Hotel vs. Braemar 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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