Correlation Between COMPASS GROUP and Starbucks

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

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

Diversification Opportunities for COMPASS GROUP and Starbucks

0.76

Correlation Coefficient

COMPASS GROUP  Starbucks

Poor diversification

The 3 months correlation between COMPASS and Starbucks is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding COMPASS GROUP and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks and COMPASS GROUP 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 COMPASS GROUP 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 COMPASS GROUP i.e., COMPASS GROUP and Starbucks go up and down completely randomly.

Pair Corralation between COMPASS GROUP and Starbucks

Assuming the 90 days horizon COMPASS GROUP is expected to generate 1.0 times more return on investment than Starbucks. However, COMPASS GROUP is 1.0 times less risky than Starbucks. It trades about 0.12 of its potential returns per unit of risk. Starbucks is currently generating about 0.01 per unit of risk. If you would invest  2,760  in COMPASS GROUP on September 23, 2024 and sell it today you would earn a total of  280.00  from holding COMPASS GROUP or generate 10.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

COMPASS GROUP  vs.  Starbucks

COMPASS GROUP

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in COMPASS GROUP are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, COMPASS GROUP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 comparatively stable fundamental drivers, Starbucks is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with COMPASS GROUP and Starbucks

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

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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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.