Correlation Between First Watch and NISOURCE

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

Diversification Opportunities for First Watch and NISOURCE

0.64

Correlation Coefficient

First Watch  NISOURCE

Poor diversification

The 3 months correlation between First and NISOURCE is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding First Watch Restaurant and NISOURCE FIN P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NISOURCE FIN P 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 NISOURCE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NISOURCE FIN P has no effect on the direction of First Watch i.e., First Watch and NISOURCE go up and down completely randomly.

Pair Corralation between First Watch and NISOURCE

Given the investment horizon of 90 days First Watch is expected to generate 1.14 times less return on investment than NISOURCE. In addition to that, First Watch is 2.95 times more volatile than NISOURCE FIN P. It trades about 0.08 of its total potential returns per unit of risk. NISOURCE FIN P is currently generating about 0.28 per unit of volatility. If you would invest  10,337  in NISOURCE FIN P on September 26, 2024 and sell it today you would earn a total of  326.00  from holding NISOURCE FIN P or generate 3.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	24.39%
Values	Daily Returns

First Watch Restaurant  vs.  NISOURCE FIN P

First Watch Restaurant

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Watch Restaurant are ranked lower than 8 (%) 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.

NISOURCE FIN P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NISOURCE FIN P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, NISOURCE is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Watch and NISOURCE

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

The idea behind First Watch Restaurant and NISOURCE FIN P 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.