Correlation Between First Watch and Waste Management

Can any of the company-specific risk be diversified away by investing in both First Watch and Waste Management 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 Waste Management 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 Waste Management, you can compare the effects of market volatilities on First Watch and Waste Management 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 Waste Management. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Watch and Waste Management.

Diversification Opportunities for First Watch and Waste Management

0.55

Correlation Coefficient

First Watch  Waste Management

Very weak diversification

The 3 months correlation between First and Waste is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding First Watch Restaurant and Waste Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waste Management 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 Waste Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waste Management has no effect on the direction of First Watch i.e., First Watch and Waste Management go up and down completely randomly.

Pair Corralation between First Watch and Waste Management

Given the investment horizon of 90 days First Watch Restaurant is expected to generate 2.18 times more return on investment than Waste Management. However, First Watch is 2.18 times more volatile than Waste Management. It trades about 0.06 of its potential returns per unit of risk. Waste Management is currently generating about 0.06 per unit of risk. If you would invest  1,354  in First Watch Restaurant on February 4, 2024 and sell it today you would earn a total of  1,151  from holding First Watch Restaurant or generate 85.01% return on investment over 90 days.

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

First Watch Restaurant  vs.  Waste Management

First Watch Restaurant

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Watch Restaurant are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, First Watch reported solid returns over the last few months and may actually be approaching a breakup point.

Waste Management

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Waste Management are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile primary indicators, Waste Management may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with First Watch and Waste Management

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

The idea behind First Watch Restaurant and Waste Management 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.