Correlation Between FAT Brands and Wingstop

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

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

Diversification Opportunities for FAT Brands and Wingstop

0.26

Correlation Coefficient

FAT Brands  Wingstop

Modest diversification

The 3 months correlation between FAT and Wingstop is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding FAT Brands and Wingstop in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wingstop 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 Wingstop. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wingstop has no effect on the direction of FAT Brands i.e., FAT Brands and Wingstop go up and down completely randomly.

Pair Corralation between FAT Brands and Wingstop

Assuming the 90 days horizon FAT Brands is expected to generate 1.37 times more return on investment than Wingstop. However, FAT Brands is 1.37 times more volatile than Wingstop. It trades about 0.03 of its potential returns per unit of risk. Wingstop is currently generating about -0.07 per unit of risk. If you would invest  446.00  in FAT Brands on September 12, 2024 and sell it today you would earn a total of  10.00  from holding FAT Brands or generate 2.24% return on investment over 90 days.

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

FAT Brands  vs.  Wingstop

FAT Brands

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FAT Brands are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating fundamental drivers, FAT Brands may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Wingstop

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wingstop has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with FAT Brands and Wingstop

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

The idea behind FAT Brands and Wingstop 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 Global Correlations module to find global opportunities by holding instruments from different markets.