Correlation Between Leggett Platt and Starbucks

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

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

Diversification Opportunities for Leggett Platt and Starbucks

0.52

Correlation Coefficient

Leggett Platt  Starbucks

Very weak diversification

The 3 months correlation between Leggett and Starbucks is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Leggett Platt Incorporated and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks and Leggett Platt 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 Leggett Platt Incorporated 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 Leggett Platt i.e., Leggett Platt and Starbucks go up and down completely randomly.

Pair Corralation between Leggett Platt and Starbucks

Considering the 90-day investment horizon Leggett Platt Incorporated is expected to under-perform the Starbucks. In addition to that, Leggett Platt is 1.11 times more volatile than Starbucks. It trades about -0.05 of its total potential returns per unit of risk. Starbucks is currently generating about 0.03 per unit of volatility. If you would invest  7,134  in Starbucks on January 19, 2024 and sell it today you would earn a total of  1,482  from holding Starbucks or generate 20.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Leggett Platt Incorporated  vs.  Starbucks

Leggett Platt rporated

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Leggett Platt Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in May 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 unfluctuating 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 Leggett Platt and Starbucks

The main advantage of trading using opposite Leggett Platt and Starbucks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Leggett Platt 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 Leggett Platt Incorporated 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..