Correlation Between Huazhu and Starbucks
Can any of the company-specific risk be diversified away by investing in both Huazhu 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 Huazhu and Starbucks into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Huazhu Group and Starbucks, you can compare the effects of market volatilities on Huazhu 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 Huazhu with a short position of Starbucks. Check out your portfolio center. Please also check ongoing floating volatility patterns of Huazhu and Starbucks.
Diversification Opportunities for Huazhu and Starbucks
Excellent diversification
The 3 months correlation between Huazhu and Starbucks is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Huazhu Group and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks and Huazhu 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 Huazhu Group 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 Huazhu i.e., Huazhu and Starbucks go up and down completely randomly.
Pair Corralation between Huazhu and Starbucks
Given the investment horizon of 90 days Huazhu Group is expected to generate 2.41 times more return on investment than Starbucks. However, Huazhu is 2.41 times more volatile than Starbucks. It trades about -0.12 of its potential returns per unit of risk. Starbucks is currently generating about -0.31 per unit of risk. If you would invest 3,974 in Huazhu Group on January 19, 2024 and sell it today you would lose (238.00) from holding Huazhu Group or give up 5.99% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Huazhu Group vs. Starbucks
Performance |
| Timeline |
| Huazhu Group |
| Starbucks |
Huazhu and Starbucks Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Huazhu and Starbucks
The main advantage of trading using opposite Huazhu and Starbucks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Huazhu 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 Huazhu Group 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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