Correlation Between First Watch and Cheesecake Factory

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

By analyzing existing cross correlation between First Watch Restaurant and The Cheesecake Factory, you can compare the effects of market volatilities on First Watch and Cheesecake Factory 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 First Watch with a short position of Cheesecake Factory. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Watch and Cheesecake Factory.

Diversification Opportunities for First Watch and Cheesecake Factory

0.79

Correlation Coefficient

First Watch  Cheesecake Factory

Poor diversification

The 3 months correlation between First and Cheesecake is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding First Watch Restaurant and The Cheesecake Factory in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Cheesecake Factory and First Watch 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 First Watch Restaurant are associated (or correlated) with Cheesecake Factory. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Cheesecake Factory has no effect on the direction of First Watch i.e., First Watch and Cheesecake Factory go up and down completely randomly.

Pair Corralation between First Watch and Cheesecake Factory

Given the investment horizon of 90 days First Watch Restaurant is expected to under-perform the Cheesecake Factory. In addition to that, First Watch is 1.33 times more volatile than The Cheesecake Factory. It trades about -0.03 of its total potential returns per unit of risk. The Cheesecake Factory is currently generating about 0.07 per unit of volatility. If you would invest  4,712  in The Cheesecake Factory on December 29, 2024 and sell it today you would earn a total of  397.00  from holding The Cheesecake Factory or generate 8.43% return on investment over 90 days.

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

First Watch Restaurant  vs.  The Cheesecake Factory

First Watch Restaurant

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Watch Restaurant has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

The Cheesecake Factory

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Cheesecake Factory are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating forward-looking signals, Cheesecake Factory may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with First Watch and Cheesecake Factory

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

The idea behind First Watch Restaurant and The Cheesecake Factory 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 CEOs Directory module to screen CEOs from public companies around the world.