Correlation Between FormFactor and Starbucks

Can any of the company-specific risk be diversified away by investing in both FormFactor 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 FormFactor and Starbucks into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between FormFactor and Starbucks, you can compare the effects of market volatilities on FormFactor 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 FormFactor with a short position of Starbucks. Check out your portfolio center. Please also check ongoing floating volatility patterns of FormFactor and Starbucks.

Diversification Opportunities for FormFactor and Starbucks

-0.56

Correlation Coefficient

FormFactor  Starbucks

Excellent diversification

The 3 months correlation between FormFactor and Starbucks is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding FormFactor and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks and FormFactor 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 FormFactor 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 FormFactor i.e., FormFactor and Starbucks go up and down completely randomly.

Pair Corralation between FormFactor and Starbucks

Given the investment horizon of 90 days FormFactor is expected to generate 2.9 times more return on investment than Starbucks. However, FormFactor is 2.9 times more volatile than Starbucks. It trades about 0.0 of its potential returns per unit of risk. Starbucks is currently generating about 0.01 per unit of risk. If you would invest  4,408  in FormFactor on September 13, 2024 and sell it today you would lose (108.00) from holding FormFactor or give up 2.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

FormFactor  vs.  Starbucks

FormFactor

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days FormFactor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, FormFactor is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Starbucks

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Starbucks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Starbucks is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with FormFactor and Starbucks

The main advantage of trading using opposite FormFactor and Starbucks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FormFactor 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.

The idea behind FormFactor 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.

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 the Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.