Correlation Between Starbucks and Aarons

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

Diversification Opportunities for Starbucks and Aarons

0.45
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Starbucks and Aarons is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Starbucks and Aarons Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aarons Inc 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 Aarons. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aarons Inc has no effect on the direction of Starbucks i.e., Starbucks and Aarons go up and down completely randomly.

Pair Corralation between Starbucks and Aarons

Given the investment horizon of 90 days Starbucks is expected to generate 1.17 times less return on investment than Aarons. But when comparing it to its historical volatility, Starbucks is 1.59 times less risky than Aarons. It trades about 0.45 of its potential returns per unit of risk. Aarons Inc is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  988.00  in Aarons Inc on September 4, 2022 and sell it today you would earn a total of  269.00  from holding Aarons Inc or generate 27.23% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy95.45%
ValuesDaily Returns

Starbucks  vs.  Aarons Inc

 Performance (%) 
       Timeline  
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

Aarons Inc 
Aarons Performance
4 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Aarons Inc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Aarons disclosed solid returns over the last few months and may actually be approaching a breakup point.

Aarons Price Channel

Starbucks and Aarons Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Starbucks and Aarons

The main advantage of trading using opposite Starbucks and Aarons positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Starbucks position performs unexpectedly, Aarons 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 Aarons will offset losses from the drop in Aarons' long position.
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The idea behind Starbucks and Aarons Inc 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.

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