Correlation Between First Watch and Wendys
Can any of the company-specific risk be diversified away by investing in both First Watch 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 First Watch and Wendys 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 The Wendys Co, you can compare the effects of market volatilities on First Watch 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 First Watch with a short position of Wendys. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Watch and Wendys.
Diversification Opportunities for First Watch and Wendys
0.4 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between First and Wendys is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding First Watch Restaurant and The Wendys Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Wendys 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 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 First Watch i.e., First Watch and Wendys go up and down completely randomly.
Pair Corralation between First Watch and Wendys
Given the investment horizon of 90 days First Watch Restaurant is expected to generate 2.33 times more return on investment than Wendys. However, First Watch is 2.33 times more volatile than The Wendys Co. It trades about 0.15 of its potential returns per unit of risk. The Wendys Co is currently generating about -0.1 per unit of risk. If you would invest 1,700 in First Watch Restaurant on September 1, 2024 and sell it today you would earn a total of 209.00 from holding First Watch Restaurant or generate 12.29% 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. The Wendys Co
Performance |
| Timeline |
| First Watch Restaurant |
| The Wendys |
First Watch and Wendys Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First Watch and Wendys
The main advantage of trading using opposite First Watch and Wendys positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Watch position performs unexpectedly, Wendys 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 Wendys will offset losses from the drop in Wendys' long position.| First Watch vs. Dine Brands Global | First Watch vs. Bloomin Brands | First Watch vs. BJs Restaurants | First Watch vs. The Cheesecake Factory |
| Wendys vs. Yum Brands | Wendys vs. Dominos Pizza | Wendys vs. Darden Restaurants | Wendys vs. Papa Johns International |
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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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