Correlation Between Starbucks and Yum Brands
Can any of the company-specific risk be diversified away by investing in both Starbucks and Yum Brands 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 Yum Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Starbucks and Yum Brands, you can compare the effects of market volatilities on Starbucks and Yum Brands 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 Yum Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Starbucks and Yum Brands.
Diversification Opportunities for Starbucks and Yum Brands
0.69 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Starbucks and Yum is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Starbucks and Yum Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yum Brands 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 Yum Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yum Brands has no effect on the direction of Starbucks i.e., Starbucks and Yum Brands go up and down completely randomly.
Pair Corralation between Starbucks and Yum Brands
Assuming the 90 days trading horizon Starbucks is expected to generate 1.19 times more return on investment than Yum Brands. However, Starbucks is 1.19 times more volatile than Yum Brands. It trades about 0.22 of its potential returns per unit of risk. Yum Brands is currently generating about 0.15 per unit of risk. If you would invest 9,053 in Starbucks on August 27, 2024 and sell it today you would earn a total of 673.00 from holding Starbucks or generate 7.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Starbucks vs. Yum Brands
Performance |
| Timeline |
| Starbucks |
| Yum Brands |
Starbucks and Yum Brands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Starbucks and Yum Brands
The main advantage of trading using opposite Starbucks and Yum Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Starbucks position performs unexpectedly, Yum Brands 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 Yum Brands will offset losses from the drop in Yum Brands' long position.| Starbucks vs. Superior Plus Corp | Starbucks vs. NMI Holdings | Starbucks vs. Origin Agritech | Starbucks vs. SIVERS SEMICONDUCTORS AB |
| Yum Brands vs. Superior Plus Corp | Yum Brands vs. NMI Holdings | Yum Brands vs. Origin Agritech | Yum Brands vs. SIVERS SEMICONDUCTORS AB |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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