Correlation Between CAVA Group, and First Watch
Can any of the company-specific risk be diversified away by investing in both CAVA Group, and First Watch 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 CAVA Group, and First Watch into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CAVA Group, and First Watch Restaurant, you can compare the effects of market volatilities on CAVA Group, and First Watch 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 CAVA Group, with a short position of First Watch. Check out your portfolio center. Please also check ongoing floating volatility patterns of CAVA Group, and First Watch.
Diversification Opportunities for CAVA Group, and First Watch
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between CAVA and First is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding CAVA Group, and First Watch Restaurant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Watch Restaurant and CAVA Group, 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 CAVA Group, are associated (or correlated) with First Watch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Watch Restaurant has no effect on the direction of CAVA Group, i.e., CAVA Group, and First Watch go up and down completely randomly.
Pair Corralation between CAVA Group, and First Watch
Given the investment horizon of 90 days CAVA Group, is expected to generate 1.58 times less return on investment than First Watch. But when comparing it to its historical volatility, CAVA Group, is 1.82 times less risky than First Watch. It trades about 0.16 of its potential returns per unit of risk. First Watch Restaurant is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest 1,560 in First Watch Restaurant on August 30, 2024 and sell it today you would earn a total of 329.00 from holding First Watch Restaurant or generate 21.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
CAVA Group, vs. First Watch Restaurant
Performance |
| Timeline |
| CAVA Group, |
| First Watch Restaurant |
CAVA Group, and First Watch Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CAVA Group, and First Watch
The main advantage of trading using opposite CAVA Group, and First Watch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CAVA Group, position performs unexpectedly, First Watch 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 First Watch will offset losses from the drop in First Watch's long position.The idea behind CAVA Group, and First Watch Restaurant 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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