Correlation Between VeriSign and Starbucks

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

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

Diversification Opportunities for VeriSign and Starbucks

0.91

Correlation Coefficient

VeriSign  Starbucks

Almost no diversification

The 3 months correlation between VeriSign and Starbucks is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding VeriSign and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks and VeriSign 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 VeriSign 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 VeriSign i.e., VeriSign and Starbucks go up and down completely randomly.

Pair Corralation between VeriSign and Starbucks

Given the investment horizon of 90 days VeriSign is expected to generate 0.47 times more return on investment than Starbucks. However, VeriSign is 2.14 times less risky than Starbucks. It trades about -0.07 of its potential returns per unit of risk. Starbucks is currently generating about -0.06 per unit of risk. If you would invest  19,102  in VeriSign on March 8, 2024 and sell it today you would lose (1,024) from holding VeriSign or give up 5.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

VeriSign  vs.  Starbucks

VeriSign

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VeriSign has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, VeriSign is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

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 latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with VeriSign and Starbucks

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

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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.