Correlation Between Starbucks and Wendys

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

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

Diversification Opportunities for Starbucks and Wendys

-0.48

Correlation Coefficient

Starbucks  Wendys

Very good diversification

The 3 months correlation between Starbucks and Wendys is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Starbucks and The Wendys Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Wendys 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 Wendys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Wendys has no effect on the direction of Starbucks i.e., Starbucks and Wendys go up and down completely randomly.

Pair Corralation between Starbucks and Wendys

Given the investment horizon of 90 days Starbucks is expected to under-perform the Wendys. In addition to that, Starbucks is 3.28 times more volatile than The Wendys Co. It trades about -0.2 of its total potential returns per unit of risk. The Wendys Co is currently generating about 0.36 per unit of volatility. If you would invest  1,833  in The Wendys Co on February 3, 2024 and sell it today you would earn a total of  159.00  from holding The Wendys Co or generate 8.67% return on investment over 90 days.

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

Starbucks  vs.  The Wendys Co

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 fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

The Wendys

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Wendys Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating technical and fundamental indicators, Wendys may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Starbucks and Wendys

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

The idea behind Starbucks and The Wendys Co 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.