Correlation Between First Watch and National CineMedia

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

Diversification Opportunities for First Watch and National CineMedia

0.2

Correlation Coefficient

First Watch  National CineMedia

Modest diversification

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

Pair Corralation between First Watch and National CineMedia

Given the investment horizon of 90 days First Watch is expected to generate 7.01 times less return on investment than National CineMedia. But when comparing it to its historical volatility, First Watch Restaurant is 3.13 times less risky than National CineMedia. It trades about 0.02 of its potential returns per unit of risk. National CineMedia is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  260.00  in National CineMedia on October 3, 2024 and sell it today you would earn a total of  404.00  from holding National CineMedia or generate 155.38% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

First Watch Restaurant  vs.  National CineMedia

First Watch Restaurant

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Watch Restaurant are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, First Watch reported solid returns over the last few months and may actually be approaching a breakup point.

National CineMedia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National CineMedia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong primary indicators, National CineMedia is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with First Watch and National CineMedia

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

The idea behind First Watch Restaurant and National CineMedia 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 Search module to search for actively traded equities including funds and ETFs from over 30 global markets.