Correlation Between Cracker Barrel and First Watch

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

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

Diversification Opportunities for Cracker Barrel and First Watch

0.65

Correlation Coefficient

Cracker Barrel  First Watch

Poor diversification

The 3 months correlation between Cracker and First is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Cracker Barrel Old 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 Cracker Barrel 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 Cracker Barrel Old 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 Cracker Barrel i.e., Cracker Barrel and First Watch go up and down completely randomly.

Pair Corralation between Cracker Barrel and First Watch

Given the investment horizon of 90 days Cracker Barrel Old is expected to generate 1.49 times more return on investment than First Watch. However, Cracker Barrel is 1.49 times more volatile than First Watch Restaurant. It trades about 0.16 of its potential returns per unit of risk. First Watch Restaurant is currently generating about 0.06 per unit of risk. If you would invest  4,841  in Cracker Barrel Old on September 23, 2024 and sell it today you would earn a total of  499.00  from holding Cracker Barrel Old or generate 10.31% return on investment over 90 days.

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

Cracker Barrel Old  vs.  First Watch Restaurant

Cracker Barrel Old

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cracker Barrel Old are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating basic indicators, Cracker Barrel disclosed solid returns over the last few months and may actually be approaching a breakup point.

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 unfluctuating basic indicators, First Watch reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cracker Barrel and First Watch

The main advantage of trading using opposite Cracker Barrel and First Watch positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cracker Barrel 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 Cracker Barrel Old 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.