Correlation Between Biglari Holdings and First Watch

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

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

Diversification Opportunities for Biglari Holdings and First Watch

0.64

Correlation Coefficient

Biglari Holdings  First Watch

Poor diversification

The 3 months correlation between Biglari and First is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Biglari Holdings 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 Biglari Holdings 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 Biglari Holdings 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 Biglari Holdings i.e., Biglari Holdings and First Watch go up and down completely randomly.

Pair Corralation between Biglari Holdings and First Watch

Allowing for the 90-day total investment horizon Biglari Holdings is expected to generate 0.9 times more return on investment than First Watch. However, Biglari Holdings is 1.11 times less risky than First Watch. It trades about 0.09 of its potential returns per unit of risk. First Watch Restaurant is currently generating about 0.01 per unit of risk. If you would invest  15,094  in Biglari Holdings on October 3, 2024 and sell it today you would earn a total of  10,506  from holding Biglari Holdings or generate 69.6% return on investment over 90 days.

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

Biglari Holdings  vs.  First Watch Restaurant

Biglari Holdings

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Biglari Holdings are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile technical indicators, Biglari Holdings demonstrated solid returns over the last few months and may actually be approaching a breakup point.

First Watch Restaurant

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Watch Restaurant are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, First Watch reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Biglari Holdings and First Watch

The main advantage of trading using opposite Biglari Holdings and First Watch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Biglari Holdings 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 Biglari Holdings 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.