Correlation Between First Watch and Brinker International

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

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

Diversification Opportunities for First Watch and Brinker International

-0.86

Correlation Coefficient

First Watch  Brinker International

Pay attention - limited upside

The 3 months correlation between First and Brinker is -0.86. Overlapping area represents the amount of risk that can be diversified away by holding First Watch Restaurant and Brinker International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brinker International and First Watch 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 First Watch Restaurant are associated (or correlated) with Brinker International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brinker International has no effect on the direction of First Watch i.e., First Watch and Brinker International go up and down completely randomly.

Pair Corralation between First Watch and Brinker International

Given the investment horizon of 90 days First Watch Restaurant is expected to under-perform the Brinker International. In addition to that, First Watch is 1.12 times more volatile than Brinker International. It trades about -0.17 of its total potential returns per unit of risk. Brinker International is currently generating about 0.28 per unit of volatility. If you would invest  4,674  in Brinker International on March 19, 2024 and sell it today you would earn a total of  2,073  from holding Brinker International or generate 44.35% return on investment over 90 days.

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

First Watch Restaurant  vs.  Brinker International

First Watch Restaurant

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Watch Restaurant has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Brinker International

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Brinker International are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Brinker International unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Watch and Brinker International

The main advantage of trading using opposite First Watch and Brinker International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Watch position performs unexpectedly, Brinker International 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 Brinker International will offset losses from the drop in Brinker International's long position.

The idea behind First Watch Restaurant and Brinker International 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.