Correlation Between Driven Brands and First Trust

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

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

Diversification Opportunities for Driven Brands and First Trust

0.43

Correlation Coefficient

Driven Brands  First Trust

Very weak diversification

The 3 months correlation between Driven and First is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Driven Brands Holdings and First Trust RBA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust RBA and Driven 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 Driven Brands Holdings are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust RBA has no effect on the direction of Driven Brands i.e., Driven Brands and First Trust go up and down completely randomly.

Pair Corralation between Driven Brands and First Trust

Given the investment horizon of 90 days Driven Brands Holdings is expected to under-perform the First Trust. In addition to that, Driven Brands is 2.03 times more volatile than First Trust RBA. It trades about -0.02 of its total potential returns per unit of risk. First Trust RBA is currently generating about 0.06 per unit of volatility. If you would invest  4,657  in First Trust RBA on December 5, 2024 and sell it today you would earn a total of  2,276  from holding First Trust RBA or generate 48.87% return on investment over 90 days.

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

Driven Brands Holdings  vs.  First Trust RBA

Driven Brands Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Driven Brands Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Driven Brands is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

First Trust RBA

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Trust RBA has generated negative risk-adjusted returns adding no value to investors with long positions. Even with inconsistent performance in the last few months, the Etf's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the ETF retail investors.

Pair Trading with Driven Brands and First Trust

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

The idea behind Driven Brands Holdings and First Trust RBA 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.