Correlation Between Coca Cola and Starbucks

Can any of the company-specific risk be diversified away by investing in both Coca Cola 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 Coca Cola and Starbucks into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The Coca Cola and Starbucks, you can compare the effects of market volatilities on Coca Cola 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 Coca Cola with a short position of Starbucks. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coca Cola and Starbucks.

Diversification Opportunities for Coca Cola and Starbucks

-0.62

Correlation Coefficient

Coca Cola  Starbucks

Excellent diversification

The 3 months correlation between Coca and Starbucks is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding The Coca Cola and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks and Coca Cola 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 The Coca Cola 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 Coca Cola i.e., Coca Cola and Starbucks go up and down completely randomly.

Pair Corralation between Coca Cola and Starbucks

Allowing for the 90-day total investment horizon The Coca Cola is expected to generate 0.17 times more return on investment than Starbucks. However, The Coca Cola is 6.06 times less risky than Starbucks. It trades about 0.65 of its potential returns per unit of risk. Starbucks is currently generating about -0.13 per unit of risk. If you would invest  5,806  in The Coca Cola on February 16, 2024 and sell it today you would earn a total of  507.00  from holding The Coca Cola or generate 8.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

The Coca Cola  vs.  Starbucks

Coca Cola

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Coca Cola are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Coca Cola may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Starbucks

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Starbucks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Coca Cola and Starbucks

The main advantage of trading using opposite Coca Cola and Starbucks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coca Cola 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.

The idea behind The Coca Cola and Starbucks pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.