Correlation Between FAT Brands and LifeMD Preferred

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

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

Diversification Opportunities for FAT Brands and LifeMD Preferred

0.16

Correlation Coefficient

FAT Brands  LifeMD Preferred

Average diversification

The 3 months correlation between FAT and LifeMD is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding FAT Brands and LifeMD Preferred Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LifeMD Preferred Series 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 LifeMD Preferred. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LifeMD Preferred Series has no effect on the direction of FAT Brands i.e., FAT Brands and LifeMD Preferred go up and down completely randomly.

Pair Corralation between FAT Brands and LifeMD Preferred

Assuming the 90 days horizon FAT Brands is expected to generate 8.17 times less return on investment than LifeMD Preferred. But when comparing it to its historical volatility, FAT Brands is 1.92 times less risky than LifeMD Preferred. It trades about 0.03 of its potential returns per unit of risk. LifeMD Preferred Series is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  2,142  in LifeMD Preferred Series on December 28, 2024 and sell it today you would earn a total of  333.00  from holding LifeMD Preferred Series or generate 15.55% return on investment over 90 days.

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

FAT Brands  vs.  LifeMD Preferred Series

FAT Brands

Risk-Adjusted Performance

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. 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.

LifeMD Preferred Series

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in LifeMD Preferred Series are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental indicators, LifeMD Preferred reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FAT Brands and LifeMD Preferred

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

The idea behind FAT Brands and LifeMD Preferred Series 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.