Can any of the company-specific risk be diversified away by investing in both Restaurant Brands and Wendys 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 Restaurant Brands and Wendys into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Restaurant Brands International and The Wendys Co, you can compare the effects of market volatilities on Restaurant Brands and Wendys 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 Restaurant Brands with a short position of Wendys. Check out your portfolio center. Please also check ongoing floating volatility patterns of Restaurant Brands and Wendys.
Diversification Opportunities for Restaurant Brands and Wendys
The 3 months correlation between Restaurant and Wendys is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Restaurant Brands Internationa and The Wendys Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Wendys and Restaurant 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 Restaurant Brands International are associated (or correlated) with Wendys. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Wendys has no effect on the direction of Restaurant Brands i.e., Restaurant Brands and Wendys go up and down completely randomly.
Pair Corralation between Restaurant Brands and Wendys
Considering the 90-day investment horizon Restaurant Brands International is expected to generate 0.84 times more return on investment than Wendys. However, Restaurant Brands International is 1.19 times less risky than Wendys. It trades about -0.32 of its potential returns per unit of risk. The Wendys Co is currently generating about -0.29 per unit of risk. If you would invest 7,535 in Restaurant Brands International on March 6, 2024 and sell it today you would lose (580.00) from holding Restaurant Brands International or give up 7.7% of portfolio value over 90 days.
Over the last 90 days Restaurant Brands International has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in July 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.
Over the last 90 days The Wendys Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Wendys is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.