Correlation Between Arcos Dorados and Wingstop

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

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

Diversification Opportunities for Arcos Dorados and Wingstop

-0.7

Correlation Coefficient

Arcos Dorados  Wingstop

Excellent diversification

The 3 months correlation between Arcos and Wingstop is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Arcos Dorados Holdings and Wingstop in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wingstop and Arcos Dorados 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 Arcos Dorados Holdings are associated (or correlated) with Wingstop. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wingstop has no effect on the direction of Arcos Dorados i.e., Arcos Dorados and Wingstop go up and down completely randomly.

Pair Corralation between Arcos Dorados and Wingstop

Given the investment horizon of 90 days Arcos Dorados Holdings is expected to under-perform the Wingstop. But the stock apears to be less risky and, when comparing its historical volatility, Arcos Dorados Holdings is 1.36 times less risky than Wingstop. The stock trades about -0.05 of its potential returns per unit of risk. The Wingstop is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  34,925  in Wingstop on January 25, 2024 and sell it today you would earn a total of  1,693  from holding Wingstop or generate 4.85% return on investment over 90 days.

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

Arcos Dorados Holdings  vs.  Wingstop

Arcos Dorados Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arcos Dorados Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Wingstop

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Wingstop are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Wingstop reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arcos Dorados and Wingstop

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

The idea behind Arcos Dorados Holdings and Wingstop 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.