Correlation Between FAT Brands and Star Equity

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

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

Diversification Opportunities for FAT Brands and Star Equity

0.54

Correlation Coefficient

FAT Brands  Star Equity

Very weak diversification

The 3 months correlation between FAT and Star is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding FAT Brands and Star Equity Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Star Equity 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 Star Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Star Equity Holdings has no effect on the direction of FAT Brands i.e., FAT Brands and Star Equity go up and down completely randomly.

Pair Corralation between FAT Brands and Star Equity

Assuming the 90 days horizon FAT Brands is expected to under-perform the Star Equity. But the preferred stock apears to be less risky and, when comparing its historical volatility, FAT Brands is 1.38 times less risky than Star Equity. The preferred stock trades about -0.06 of its potential returns per unit of risk. The Star Equity Holdings is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  872.00  in Star Equity Holdings on October 22, 2024 and sell it today you would earn a total of  48.00  from holding Star Equity Holdings or generate 5.5% return on investment over 90 days.

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

FAT Brands  vs.  Star Equity Holdings

FAT Brands

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FAT Brands are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental drivers, FAT Brands may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Star Equity Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Star Equity Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Star Equity is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with FAT Brands and Star Equity

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

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