Correlation Between BJs Restaurants and FAT Brands

Can any of the company-specific risk be diversified away by investing in both BJs Restaurants and FAT Brands 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 BJs Restaurants and FAT Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BJs Restaurants and FAT Brands, you can compare the effects of market volatilities on BJs Restaurants and FAT Brands 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 BJs Restaurants with a short position of FAT Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of BJs Restaurants and FAT Brands.

Diversification Opportunities for BJs Restaurants and FAT Brands

0.3

Correlation Coefficient

BJs Restaurants  FAT Brands

Weak diversification

The 3 months correlation between BJs and FAT is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding BJs Restaurants and FAT Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAT Brands and BJs Restaurants 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 BJs Restaurants are associated (or correlated) with FAT Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FAT Brands has no effect on the direction of BJs Restaurants i.e., BJs Restaurants and FAT Brands go up and down completely randomly.

Pair Corralation between BJs Restaurants and FAT Brands

Given the investment horizon of 90 days BJs Restaurants is expected to generate 2.68 times more return on investment than FAT Brands. However, BJs Restaurants is 2.68 times more volatile than FAT Brands. It trades about 0.05 of its potential returns per unit of risk. FAT Brands is currently generating about 0.06 per unit of risk. If you would invest  3,256  in BJs Restaurants on September 30, 2024 and sell it today you would earn a total of  218.00  from holding BJs Restaurants or generate 6.7% return on investment over 90 days.

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

BJs Restaurants  vs.  FAT Brands

BJs Restaurants

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Restaurants are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, BJs Restaurants may actually be approaching a critical reversion point that can send shares even higher in January 2025.

FAT Brands

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FAT Brands are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental drivers, FAT Brands is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with BJs Restaurants and FAT Brands

The main advantage of trading using opposite BJs Restaurants and FAT Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BJs Restaurants position performs unexpectedly, FAT Brands 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 FAT Brands will offset losses from the drop in FAT Brands' long position.

The idea behind BJs Restaurants and FAT Brands 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.