Correlation Between Starbucks and Hershey

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

Diversification Opportunities for Starbucks and Hershey

  Correlation Coefficient

Average diversification

The 3 months correlation between Starbucks and Hershey is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Starbucks and Hershey Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hershey 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 Hershey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hershey has no effect on the direction of Starbucks i.e., Starbucks and Hershey go up and down completely randomly.

Pair Corralation between Starbucks and Hershey

Given the investment horizon of 90 days Starbucks is expected to generate 1.13 times more return on investment than Hershey. However, Starbucks is 1.13 times more volatile than Hershey Co. It trades about 0.4 of its potential returns per unit of risk. Hershey Co is currently generating about 0.1 per unit of risk. If you would invest  9,133  in Starbucks on September 5, 2022 and sell it today you would earn a total of  1,372  from holding Starbucks or generate 15.02% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
ValuesDaily Returns

Starbucks  vs.  Hershey Co

 Performance (%) 
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

Hershey Performance
5 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Hershey Co are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Hershey is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Hershey Price Channel

Starbucks and Hershey Volatility Contrast

   Predicted Return Density   

Pair Trading with Starbucks and Hershey

The main advantage of trading using opposite Starbucks and Hershey positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Starbucks position performs unexpectedly, Hershey 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 Hershey will offset losses from the drop in Hershey's long position.
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The idea behind Starbucks and Hershey Co 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 Focused Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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