Correlation Between FAT Brands and BT Brands

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

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

Diversification Opportunities for FAT Brands and BT Brands

-0.12

Correlation Coefficient

FAT Brands  BT Brands

Good diversification

The 3 months correlation between FAT and BTBDW is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding FAT Brands and BT Brands Warrant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BT Brands Warrant 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 BT Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BT Brands Warrant has no effect on the direction of FAT Brands i.e., FAT Brands and BT Brands go up and down completely randomly.

Pair Corralation between FAT Brands and BT Brands

Assuming the 90 days horizon FAT Brands is expected to generate 5.39 times less return on investment than BT Brands. But when comparing it to its historical volatility, FAT Brands is 2.25 times less risky than BT Brands. It trades about 0.08 of its potential returns per unit of risk. BT Brands Warrant is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  12.00  in BT Brands Warrant on October 9, 2024 and sell it today you would lose (6.71) from holding BT Brands Warrant or give up 55.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	76.92%
Values	Daily Returns

FAT Brands  vs.  BT Brands Warrant

FAT Brands

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FAT Brands are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, FAT Brands showed solid returns over the last few months and may actually be approaching a breakup point.

BT Brands Warrant

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BT Brands Warrant are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental indicators, BT Brands showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FAT Brands and BT Brands

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

The idea behind FAT Brands and BT Brands Warrant 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.