Correlation Between Bloomin Brands and FAT Brands

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

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

Diversification Opportunities for Bloomin Brands and FAT Brands

0.09

Correlation Coefficient

Bloomin Brands  FAT Brands

Significant diversification

The 3 months correlation between Bloomin and FAT is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Bloomin Brands and FAT Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAT Brands and Bloomin Brands 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 Bloomin Brands 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 Bloomin Brands i.e., Bloomin Brands and FAT Brands go up and down completely randomly.

Pair Corralation between Bloomin Brands and FAT Brands

Given the investment horizon of 90 days Bloomin Brands is expected to under-perform the FAT Brands. But the stock apears to be less risky and, when comparing its historical volatility, Bloomin Brands is 1.05 times less risky than FAT Brands. The stock trades about -0.2 of its potential returns per unit of risk. The FAT Brands is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  463.00  in FAT Brands on September 29, 2024 and sell it today you would lose (17.00) from holding FAT Brands or give up 3.67% of portfolio value over 90 days.

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

Bloomin Brands  vs.  FAT Brands

Bloomin Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bloomin Brands has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

FAT Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FAT Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, FAT Brands is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bloomin Brands and FAT Brands

The main advantage of trading using opposite Bloomin Brands and FAT Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bloomin Brands 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 Bloomin Brands 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.