Correlation Between Barings BDC and First Watch

Can any of the company-specific risk be diversified away by investing in both Barings BDC 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 Barings BDC and First Watch into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Barings BDC and First Watch Restaurant, you can compare the effects of market volatilities on Barings BDC 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 Barings BDC with a short position of First Watch. Check out your portfolio center. Please also check ongoing floating volatility patterns of Barings BDC and First Watch.

Diversification Opportunities for Barings BDC and First Watch

0.31

Correlation Coefficient

Barings BDC  First Watch

Weak diversification

The 3 months correlation between Barings and First is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Barings BDC 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 Barings BDC 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 Barings BDC 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 Barings BDC i.e., Barings BDC and First Watch go up and down completely randomly.

Pair Corralation between Barings BDC and First Watch

Given the investment horizon of 90 days Barings BDC is expected to generate 5.19 times less return on investment than First Watch. But when comparing it to its historical volatility, Barings BDC is 3.7 times less risky than First Watch. It trades about 0.08 of its potential returns per unit of risk. First Watch Restaurant is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,568  in First Watch Restaurant on September 1, 2024 and sell it today you would earn a total of  341.00  from holding First Watch Restaurant or generate 21.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Barings BDC  vs.  First Watch Restaurant

Barings BDC

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Barings BDC are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Barings BDC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

First Watch Restaurant

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Watch Restaurant are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, First Watch reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Barings BDC and First Watch

The main advantage of trading using opposite Barings BDC and First Watch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Barings BDC 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 Barings BDC 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.

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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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.