Correlation Between Avery Dennison and FAT Brands

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Can any of the company-specific risk be diversified away by investing in both Avery Dennison and FAT Brands 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 Avery Dennison and FAT Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Avery Dennison Corp and FAT Brands, you can compare the effects of market volatilities on Avery Dennison and FAT Brands 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 Avery Dennison with a short position of FAT Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Avery Dennison and FAT Brands.

Diversification Opportunities for Avery Dennison and FAT Brands

AveryFATDiversified AwayAveryFATDiversified Away100%
-0.66
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Avery and FAT is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding Avery Dennison Corp and FAT Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAT Brands and Avery Dennison 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 Avery Dennison Corp are associated (or correlated) with FAT Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FAT Brands has no effect on the direction of Avery Dennison i.e., Avery Dennison and FAT Brands go up and down completely randomly.

Pair Corralation between Avery Dennison and FAT Brands

Considering the 90-day investment horizon Avery Dennison Corp is expected to generate 0.72 times more return on investment than FAT Brands. However, Avery Dennison Corp is 1.39 times less risky than FAT Brands. It trades about -0.05 of its potential returns per unit of risk. FAT Brands is currently generating about -0.07 per unit of risk. If you would invest  21,675  in Avery Dennison Corp on November 21, 2024 and sell it today you would lose (3,308) from holding Avery Dennison Corp or give up 15.26% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Avery Dennison Corp  vs.  FAT Brands

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -10-50510
JavaScript chart by amCharts 3.21.15AVY FATBP
       Timeline  
Avery Dennison Corp 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Avery Dennison Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb180185190195200205
FAT Brands 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in FAT Brands are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental drivers, FAT Brands reported solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb8.899.29.49.69.810

Avery Dennison and FAT Brands Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-2.19-1.68-1.17-0.66-0.150.310.821.331.842.35 0.050.100.150.200.250.30
JavaScript chart by amCharts 3.21.15AVY FATBP
       Returns  

Pair Trading with Avery Dennison and FAT Brands

The main advantage of trading using opposite Avery Dennison and FAT Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Avery Dennison position performs unexpectedly, FAT Brands 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 FAT Brands will offset losses from the drop in FAT Brands' long position.
The idea behind Avery Dennison Corp and FAT Brands 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.

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