Correlation Between Starbucks and Rave Restaurant

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Can any of the company-specific risk be diversified away by investing in both Starbucks and Rave Restaurant 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 Rave Restaurant into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Starbucks and Rave Restaurant Group, you can compare the effects of market volatilities on Starbucks and Rave Restaurant 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 Rave Restaurant. Check out your portfolio center. Please also check ongoing floating volatility patterns of Starbucks and Rave Restaurant.

Diversification Opportunities for Starbucks and Rave Restaurant

-0.09
  Correlation Coefficient

Good diversification

The 3 months correlation between Starbucks and Rave Restaurant is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Starbucks and Rave Restaurant Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rave Restaurant Group 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 Rave Restaurant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rave Restaurant Group has no effect on the direction of Starbucks i.e., Starbucks and Rave Restaurant go up and down completely randomly.

Pair Corralation between Starbucks and Rave Restaurant

Given the investment horizon of 90 days Starbucks is expected to generate 7.71 times less return on investment than Rave Restaurant. But when comparing it to its historical volatility, Starbucks is 1.83 times less risky than Rave Restaurant. It trades about 0.01 of its potential returns per unit of risk. Rave Restaurant Group is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  125.00  in Rave Restaurant Group on October 30, 2022 and sell it today you would earn a total of  43.00  from holding Rave Restaurant Group or generate 34.4% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy99.68%
ValuesDaily Returns

Starbucks  vs.  Rave Restaurant Group

 Performance (%) 
       Timeline  
Starbucks 
Starbucks Performance
17 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Starbucks are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Starbucks showed solid returns over the last few months and may actually be approaching a breakup point.

Starbucks Price Channel

Rave Restaurant Group 
Rave Restaurant Performance
0 of 100
Over the last 90 days Rave Restaurant Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Rave Restaurant is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Rave Restaurant Price Channel

Starbucks and Rave Restaurant Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Starbucks and Rave Restaurant

The main advantage of trading using opposite Starbucks and Rave Restaurant positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Starbucks position performs unexpectedly, Rave Restaurant 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 Rave Restaurant will offset losses from the drop in Rave Restaurant's long position.
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The idea behind Starbucks and Rave Restaurant Group 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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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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.

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