Correlation Between FAT Brands and Noble Romans

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

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

Diversification Opportunities for FAT Brands and Noble Romans

0.41

Correlation Coefficient

FAT Brands  Noble Romans

Very weak diversification

The 3 months correlation between FAT and Noble is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding FAT Brands and Noble Romans in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Noble Romans 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 Noble Romans. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Noble Romans has no effect on the direction of FAT Brands i.e., FAT Brands and Noble Romans go up and down completely randomly.

Pair Corralation between FAT Brands and Noble Romans

Assuming the 90 days horizon FAT Brands is expected to under-perform the Noble Romans. But the stock apears to be less risky and, when comparing its historical volatility, FAT Brands is 1.66 times less risky than Noble Romans. The stock trades about -0.02 of its potential returns per unit of risk. The Noble Romans is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  38.00  in Noble Romans on October 4, 2024 and sell it today you would lose (3.00) from holding Noble Romans or give up 7.89% of portfolio value over 90 days.

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

FAT Brands  vs.  Noble Romans

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.

Noble Romans

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Noble Romans are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Noble Romans is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with FAT Brands and Noble Romans

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

The idea behind FAT Brands and Noble Romans 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.