Correlation Between Cheesecake Factory and FAT Brands

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

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

Diversification Opportunities for Cheesecake Factory and FAT Brands

-0.14

Correlation Coefficient

Cheesecake Factory  FAT Brands

Good diversification

The 3 months correlation between Cheesecake and FAT is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding The Cheesecake Factory and FAT Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAT Brands and Cheesecake Factory 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 The Cheesecake Factory 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 Cheesecake Factory i.e., Cheesecake Factory and FAT Brands go up and down completely randomly.

Pair Corralation between Cheesecake Factory and FAT Brands

Given the investment horizon of 90 days The Cheesecake Factory is expected to under-perform the FAT Brands. But the stock apears to be less risky and, when comparing its historical volatility, The Cheesecake Factory is 2.51 times less risky than FAT Brands. The stock trades about -0.08 of its potential returns per unit of risk. The FAT Brands is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  444.00  in FAT Brands on October 17, 2024 and sell it today you would earn a total of  25.00  from holding FAT Brands or generate 5.63% return on investment over 90 days.

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

The Cheesecake Factory  vs.  FAT Brands

The Cheesecake Factory

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Cheesecake Factory are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating forward-looking signals, Cheesecake Factory exhibited solid returns over the last few months and may actually be approaching a breakup point.

FAT Brands

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FAT Brands are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, FAT Brands may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Cheesecake Factory and FAT Brands

The main advantage of trading using opposite Cheesecake Factory and FAT Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cheesecake Factory 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 The Cheesecake Factory 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 Anywhere module to track or share privately all of your investments from the convenience of any device.