Correlation Between Starbucks and Charter Communications

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

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

Diversification Opportunities for Starbucks and Charter Communications

0.42

Correlation Coefficient

Starbucks  Charter Communications

Very weak diversification

The 3 months correlation between Starbucks and Charter is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Starbucks and Charter Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Charter Communications 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 Charter Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Charter Communications has no effect on the direction of Starbucks i.e., Starbucks and Charter Communications go up and down completely randomly.

Pair Corralation between Starbucks and Charter Communications

Given the investment horizon of 90 days Starbucks is expected to generate 0.62 times more return on investment than Charter Communications. However, Starbucks is 1.62 times less risky than Charter Communications. It trades about -0.1 of its potential returns per unit of risk. Charter Communications is currently generating about -0.28 per unit of risk. If you would invest  9,067  in Starbucks on January 25, 2024 and sell it today you would lose (192.00) from holding Starbucks or give up 2.12% of portfolio value over 90 days.

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

Starbucks  vs.  Charter Communications

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 fairly strong basic indicators, Starbucks is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Charter Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Charter Communications has generated negative risk-adjusted returns adding no value to investors with long positions. Even with uncertain performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in May 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Starbucks and Charter Communications

The main advantage of trading using opposite Starbucks and Charter Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Starbucks position performs unexpectedly, Charter Communications 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 Charter Communications will offset losses from the drop in Charter Communications' long position.

The idea behind Starbucks and Charter Communications 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.