Correlation Between Good Times and Portillos
Can any of the company-specific risk be diversified away by investing in both Good Times and Portillos 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 Portillos 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 Portillos, you can compare the effects of market volatilities on Good Times and Portillos 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 Portillos. Check out your portfolio center. Please also check ongoing floating volatility patterns of Good Times and Portillos.
Diversification Opportunities for Good Times and Portillos
0.59 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Good and Portillos is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Good Times Restaurants and Portillos in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Portillos 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 Portillos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Portillos has no effect on the direction of Good Times i.e., Good Times and Portillos go up and down completely randomly.
Pair Corralation between Good Times and Portillos
Given the investment horizon of 90 days Good Times Restaurants is expected to generate 0.91 times more return on investment than Portillos. However, Good Times Restaurants is 1.09 times less risky than Portillos. It trades about 0.04 of its potential returns per unit of risk. Portillos is currently generating about -0.06 per unit of risk. If you would invest 232.00 in Good Times Restaurants on September 14, 2024 and sell it today you would earn a total of 38.00 from holding Good Times Restaurants or generate 16.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Good Times Restaurants vs. Portillos
Performance |
| Timeline |
| Good Times Restaurants |
| Portillos |
Good Times and Portillos Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Good Times and Portillos
The main advantage of trading using opposite Good Times and Portillos positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Good Times position performs unexpectedly, Portillos 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 Portillos will offset losses from the drop in Portillos' long position.The idea behind Good Times Restaurants and Portillos 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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