Correlation Between Starbucks and Cardinal Health

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

Diversification Opportunities for Starbucks and Cardinal Health

0.63
  Correlation Coefficient

Poor diversification

The 3 months correlation between Starbucks and Cardinal is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Starbucks and Cardinal Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cardinal Health 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 Cardinal Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cardinal Health has no effect on the direction of Starbucks i.e., Starbucks and Cardinal Health go up and down completely randomly.

Pair Corralation between Starbucks and Cardinal Health

Given the investment horizon of 90 days Starbucks is expected to generate 1.28 times more return on investment than Cardinal Health. However, Starbucks is 1.28 times more volatile than Cardinal Health. It trades about 0.46 of its potential returns per unit of risk. Cardinal Health is currently generating about 0.18 per unit of risk. If you would invest  8,419  in Starbucks on September 4, 2022 and sell it today you would earn a total of  2,086  from holding Starbucks or generate 24.78% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Starbucks  vs.  Cardinal Health

 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 weak basic indicators, Starbucks showed solid returns over the last few months and may actually be approaching a breakup point.

Starbucks Price Channel

Cardinal Health 
Cardinal Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Cardinal Health are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, Cardinal Health reported solid returns over the last few months and may actually be approaching a breakup point.

Cardinal Price Channel

Starbucks and Cardinal Health Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Starbucks and Cardinal Health

The main advantage of trading using opposite Starbucks and Cardinal Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Starbucks position performs unexpectedly, Cardinal Health 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 Cardinal Health will offset losses from the drop in Cardinal Health's long position.
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The idea behind Starbucks and Cardinal Health 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.

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