Correlation Between Starbucks and Stepan
Can any of the company-specific risk be diversified away by investing in both Starbucks and Stepan 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 Stepan into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Starbucks and Stepan Company, you can compare the effects of market volatilities on Starbucks and Stepan 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 Stepan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Starbucks and Stepan.
Diversification Opportunities for Starbucks and Stepan
Modest diversification
The 3 months correlation between Starbucks and Stepan is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Starbucks and Stepan Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stepan Company 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 Stepan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stepan Company has no effect on the direction of Starbucks i.e., Starbucks and Stepan go up and down completely randomly.
Pair Corralation between Starbucks and Stepan
Given the investment horizon of 90 days Starbucks is expected to generate 1.07 times less return on investment than Stepan. But when comparing it to its historical volatility, Starbucks is 1.83 times less risky than Stepan. It trades about 0.16 of its potential returns per unit of risk. Stepan Company is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 7,246 in Stepan Company on September 5, 2024 and sell it today you would earn a total of 315.00 from holding Stepan Company or generate 4.35% 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. Stepan Company
Performance |
| Timeline |
| Starbucks |
| Stepan Company |
Starbucks and Stepan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Starbucks and Stepan
The main advantage of trading using opposite Starbucks and Stepan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Starbucks position performs unexpectedly, Stepan 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 Stepan will offset losses from the drop in Stepan's long position.| Starbucks vs. Hyatt Hotels | Starbucks vs. Smart Share Global | Starbucks vs. Wyndham Hotels Resorts | Starbucks vs. WW International |
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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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