Correlation Between FAT Brands and Cannae Holdings

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

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

Diversification Opportunities for FAT Brands and Cannae Holdings

0.28

Correlation Coefficient

FAT Brands  Cannae Holdings

Modest diversification

The 3 months correlation between FAT and Cannae is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding FAT Brands and Cannae Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cannae Holdings 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 Cannae Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cannae Holdings has no effect on the direction of FAT Brands i.e., FAT Brands and Cannae Holdings go up and down completely randomly.

Pair Corralation between FAT Brands and Cannae Holdings

Assuming the 90 days horizon FAT Brands is expected to generate 1.08 times more return on investment than Cannae Holdings. However, FAT Brands is 1.08 times more volatile than Cannae Holdings. It trades about 0.17 of its potential returns per unit of risk. Cannae Holdings is currently generating about -0.05 per unit of risk. If you would invest  907.00  in FAT Brands on September 21, 2024 and sell it today you would earn a total of  43.00  from holding FAT Brands or generate 4.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.45%
Values	Daily Returns

FAT Brands  vs.  Cannae Holdings

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. Even with relatively invariable fundamental drivers, FAT Brands is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Cannae Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cannae Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Cannae Holdings is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with FAT Brands and Cannae Holdings

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

The idea behind FAT Brands and Cannae Holdings 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.