Correlation Between First Watch and New Horizon

Can any of the company-specific risk be diversified away by investing in both First Watch and New Horizon 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 New Horizon 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 New Horizon Aircraft, you can compare the effects of market volatilities on First Watch and New Horizon 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 New Horizon. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Watch and New Horizon.

Diversification Opportunities for First Watch and New Horizon

-0.2

Correlation Coefficient

First Watch  New Horizon

Good diversification

The 3 months correlation between First and New is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding First Watch Restaurant and New Horizon Aircraft in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New Horizon Aircraft 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 New Horizon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New Horizon Aircraft has no effect on the direction of First Watch i.e., First Watch and New Horizon go up and down completely randomly.

Pair Corralation between First Watch and New Horizon

Given the investment horizon of 90 days First Watch Restaurant is expected to under-perform the New Horizon. But the stock apears to be less risky and, when comparing its historical volatility, First Watch Restaurant is 3.38 times less risky than New Horizon. The stock trades about -0.08 of its potential returns per unit of risk. The New Horizon Aircraft is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  66.00  in New Horizon Aircraft on December 17, 2024 and sell it today you would lose (13.00) from holding New Horizon Aircraft or give up 19.7% of portfolio value over 90 days.

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

First Watch Restaurant  vs.  New Horizon Aircraft

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 weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

New Horizon Aircraft

Risk-Adjusted Performance

Very Weak

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

Pair Trading with First Watch and New Horizon

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

The idea behind First Watch Restaurant and New Horizon Aircraft 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.