Correlation Between Caterpillar and Starbucks Corp

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

Diversification Opportunities for Caterpillar and Starbucks Corp

0.39
  Correlation Coefficient

Weak diversification

The 3 months correlation between Caterpillar and Starbucks is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Caterpillar and Starbucks Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks Corp and Caterpillar 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 Caterpillar are associated (or correlated) with Starbucks Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Starbucks Corp has no effect on the direction of Caterpillar i.e., Caterpillar and Starbucks Corp go up and down completely randomly.

Pair Corralation between Caterpillar and Starbucks Corp

Considering the 90-day investment horizon Caterpillar is expected to generate 1.0 times more return on investment than Starbucks Corp. However, Caterpillar is 1.0 times less risky than Starbucks Corp. It trades about 0.01 of its potential returns per unit of risk. Starbucks Corp is currently generating about 0.0 per unit of risk. If you would invest  16,295  in Caterpillar on July 5, 2022 and sell it today you would earn a total of  844.00  from holding Caterpillar or generate 5.18% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Caterpillar  vs.  Starbucks Corp

 Performance (%) 
       Timeline  
Caterpillar 
Caterpillar Performance
0 of 100
Over the last 90 days Caterpillar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Caterpillar is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Caterpillar Price Channel

Starbucks Corp 
Starbucks Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Starbucks Corp are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Starbucks Corp may actually be approaching a critical reversion point that can send shares even higher in November 2022.

Starbucks Price Channel

Caterpillar and Starbucks Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Caterpillar and Starbucks Corp

The main advantage of trading using opposite Caterpillar and Starbucks Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Caterpillar position performs unexpectedly, Starbucks Corp 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 Corp will offset losses from the drop in Starbucks Corp's long position.
Caterpillar vs. Amazon Inc
The idea behind Caterpillar and Starbucks Corp 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.
Starbucks Corp vs. Amazon Inc
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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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