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Green Mountain Coffee Roasters Shows Value of Correlation Trading

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Another article in Benzinga recently covered why Green Mountain Coffee Roasters (NASDAQ: GMCR) has been soaring.

Over the last week of market action, Green Mountain Coffee Roasters is up more than 40 percent, due to a deal with Coca-Cola (NYSE: KO). With a short float of over 30 percent, collective gasping can be heard from the short squeeze. This proves the value of correlation investing, whether long or short.

Correlation investing is taking a position indirectly, to profit from what is going on in a sector on another entity.

As an example, take the housing industry. If an investor wants to profit from a position on housing, but feels that home-builder stocks are priced too high, there are many alternatives. An obvious one would be lumber. Another, as detailed in a previous piece on Benzinga, would be railroads. The building components for a houses constitute a large portion of the cargo hauled on trains. Sites such as Macroaxis provide correlations for companies for investors to consider.

Many were betting that Green Mountain Coffee Roasters would fall due to competition from Starbucks (NASDAQ: SBUX).

Related: Will Green Mountain 'Revert to the Mean' After Its Coca-Cola Deal?

That is obvious from the high short position. A short float of five percent is considered to be troubling for a company. There is certainly a great deal of merit to that stance. After all, Starbucks is Starbucks: 'nuff said there. In addition, even before the recent run-up in the stock price, Green Mountain Coffee Roasters was trading at rich valuations.

At this time, it is pretty much assured those holding a short position on Green Mountain Coffee Roasters wish they had checked out correlation possibilities on Macroaxis or some other site.

Companies cut deals; that happens all the time. As the price spike shows for Green Mountain, the market certainly was not expecting anything the magnitude of what was recently announced with Coca-Cola.

For those looking to profit from going long or short, that shows the value of correlation investing!

Posted-In: coffee correlation trading food and beverageLong Ideas News Short Ideas Technicals Restaurants Events Trading Ideas General Best of Benzinga

 

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