Correlation Between Starbucks and FTI Consulting

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

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

Diversification Opportunities for Starbucks and FTI Consulting

-0.36

Correlation Coefficient

Starbucks  FTI Consulting

Very good diversification

The 3 months correlation between Starbucks and FTI is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Starbucks and FTI Consulting in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FTI Consulting 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 FTI Consulting. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FTI Consulting has no effect on the direction of Starbucks i.e., Starbucks and FTI Consulting go up and down completely randomly.

Pair Corralation between Starbucks and FTI Consulting

Given the investment horizon of 90 days Starbucks is expected to under-perform the FTI Consulting. But the stock apears to be less risky and, when comparing its historical volatility, Starbucks is 1.55 times less risky than FTI Consulting. The stock trades about -0.06 of its potential returns per unit of risk. The FTI Consulting is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  17,785  in FTI Consulting on January 26, 2024 and sell it today you would earn a total of  3,589  from holding FTI Consulting or generate 20.18% return on investment over 90 days.

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

Starbucks  vs.  FTI Consulting

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.

FTI Consulting

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FTI Consulting are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, FTI Consulting may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Starbucks and FTI Consulting

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

The idea behind Starbucks and FTI Consulting 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.