Correlation Between FAT Brands and Noodles

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

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

Diversification Opportunities for FAT Brands and Noodles

0.71

Correlation Coefficient

FAT Brands  Noodles

Poor diversification

The 3 months correlation between FAT and Noodles is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding FAT Brands and Noodles Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Noodles Company and FAT 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 FAT Brands are associated (or correlated) with Noodles. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Noodles Company has no effect on the direction of FAT Brands i.e., FAT Brands and Noodles go up and down completely randomly.

Pair Corralation between FAT Brands and Noodles

Assuming the 90 days horizon FAT Brands is expected to generate 3.41 times less return on investment than Noodles. But when comparing it to its historical volatility, FAT Brands is 1.34 times less risky than Noodles. It trades about 0.07 of its potential returns per unit of risk. Noodles Company is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  60.00  in Noodles Company on December 28, 2024 and sell it today you would earn a total of  58.00  from holding Noodles Company or generate 96.67% return on investment over 90 days.

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

FAT Brands  vs.  Noodles Company

FAT Brands

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FAT Brands are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, FAT Brands sustained solid returns over the last few months and may actually be approaching a breakup point.

Noodles Company

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Noodles Company are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent essential indicators, Noodles unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FAT Brands and Noodles

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

The idea behind FAT Brands and Noodles Company 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.