Correlation Between General Electric and Starbucks

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

Diversification Opportunities for General Electric and Starbucks

0.76
  Correlation Coefficient

Poor diversification

The 3 months correlation between General and Starbucks is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding General Electric and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks and General Electric 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 General Electric are associated (or correlated) with Starbucks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Starbucks has no effect on the direction of General Electric i.e., General Electric and Starbucks go up and down completely randomly.

Pair Corralation between General Electric and Starbucks

Allowing for the 90-day total investment horizon General Electric is expected to under-perform the Starbucks. But the stock apears to be less risky and, when comparing its historical volatility, General Electric is 1.05 times less risky than Starbucks. The stock trades about -0.01 of its potential returns per unit of risk. The Starbucks is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  11,266  in Starbucks on September 5, 2022 and sell it today you would lose (761.00)  from holding Starbucks or give up 6.75% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

General Electric  vs.  Starbucks

 Performance (%) 
       Timeline  
General Electric 
General Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in General Electric are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, General Electric exhibited solid returns over the last few months and may actually be approaching a breakup point.

General Price Channel

Starbucks 
Starbucks Performance
12 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Starbucks are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly sluggish basic indicators, Starbucks showed solid returns over the last few months and may actually be approaching a breakup point.

Starbucks Price Channel

General Electric and Starbucks Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with General Electric and Starbucks

The main advantage of trading using opposite General Electric and Starbucks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Electric position performs unexpectedly, Starbucks 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 will offset losses from the drop in Starbucks' long position.
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The idea behind General Electric and Starbucks 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 CEO Directory module to screen CEOs from public companies around the world.

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