Correlation Between Good Times and First Watch
Can any of the company-specific risk be diversified away by investing in both Good Times 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 Good Times and First Watch into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Good Times Restaurants and First Watch Restaurant, you can compare the effects of market volatilities on Good Times 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 Good Times with a short position of First Watch. Check out your portfolio center. Please also check ongoing floating volatility patterns of Good Times and First Watch.
Diversification Opportunities for Good Times and First Watch
-0.42 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Good and First is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Good Times Restaurants 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 Good Times 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 Good Times Restaurants 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 Good Times i.e., Good Times and First Watch go up and down completely randomly.
Pair Corralation between Good Times and First Watch
Given the investment horizon of 90 days Good Times Restaurants is expected to under-perform the First Watch. But the stock apears to be less risky and, when comparing its historical volatility, Good Times Restaurants is 1.86 times less risky than First Watch. The stock trades about -0.09 of its potential returns per unit of risk. The First Watch Restaurant is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 1,955 in First Watch Restaurant on September 13, 2024 and sell it today you would earn a total of 3.00 from holding First Watch Restaurant or generate 0.15% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Good Times Restaurants vs. First Watch Restaurant
Performance |
| Timeline |
| Good Times Restaurants |
| First Watch Restaurant |
Good Times and First Watch Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Good Times and First Watch
The main advantage of trading using opposite Good Times and First Watch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Good Times 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 Good Times Restaurants 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..
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