Correlation Between FAT Brands and Brinker International
Can any of the company-specific risk be diversified away by investing in both FAT Brands 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 FAT Brands and Brinker International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FAT Brands and Brinker International, you can compare the effects of market volatilities on FAT Brands 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 FAT Brands with a short position of Brinker International. Check out your portfolio center. Please also check ongoing floating volatility patterns of FAT Brands and Brinker International.
Diversification Opportunities for FAT Brands and Brinker International
0.31 | Correlation Coefficient |
Weak diversification
The 3 months correlation between FAT and Brinker is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding FAT Brands and Brinker International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brinker International and FAT Brands 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 FAT Brands 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 FAT Brands i.e., FAT Brands and Brinker International go up and down completely randomly.
Pair Corralation between FAT Brands and Brinker International
Considering the 90-day investment horizon FAT Brands is expected to generate 1.2 times more return on investment than Brinker International. However, FAT Brands is 1.2 times more volatile than Brinker International. It trades about 0.06 of its potential returns per unit of risk. Brinker International is currently generating about 0.04 per unit of risk. If you would invest 513.00 in FAT Brands on January 19, 2024 and sell it today you would earn a total of 192.00 from holding FAT Brands or generate 37.43% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
FAT Brands vs. Brinker International
Performance |
| Timeline |
| FAT Brands |
| Brinker International |
FAT Brands and Brinker International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FAT Brands and Brinker International
The main advantage of trading using opposite FAT Brands and Brinker International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FAT Brands 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 FAT Brands 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.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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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