Correlation Between Merchants Bancorp and Starbucks Corp

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

Diversification Opportunities for Merchants Bancorp and Starbucks Corp

0.57
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Merchants and Starbucks is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Merchants Bancorp and Starbucks Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks Corp and Merchants Bancorp 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 Merchants Bancorp 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 Merchants Bancorp i.e., Merchants Bancorp and Starbucks Corp go up and down completely randomly.

Pair Corralation between Merchants Bancorp and Starbucks Corp

Given the investment horizon of 90 days Merchants Bancorp is expected to under-perform the Starbucks Corp. In addition to that, Merchants Bancorp is 1.0 times more volatile than Starbucks Corp. It trades about -0.14 of its total potential returns per unit of risk. Starbucks Corp is currently generating about 0.13 per unit of volatility. If you would invest  8,452  in Starbucks Corp on July 8, 2022 and sell it today you would earn a total of  560.00  from holding Starbucks Corp or generate 6.63% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy95.65%
ValuesDaily Returns

Merchants Bancorp  vs.  Starbucks Corp

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

Merchants Price Channel

Starbucks Corp 
Starbucks Performance
8 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Starbucks Corp are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Starbucks Corp showed solid returns over the last few months and may actually be approaching a breakup point.

Starbucks Price Channel

Merchants Bancorp and Starbucks Corp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Merchants Bancorp and Starbucks Corp

The main advantage of trading using opposite Merchants Bancorp and Starbucks Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merchants Bancorp 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.
Merchants Bancorp vs. Amazon Inc
The idea behind Merchants Bancorp 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 Global Correlations module to find global opportunities by holding instruments from different markets.

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