Correlation Between Good Times and El Pollo

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

By analyzing existing cross correlation between Good Times Restaurants and El Pollo Loco, you can compare the effects of market volatilities on Good Times and El Pollo 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 Good Times with a short position of El Pollo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Good Times and El Pollo.

Diversification Opportunities for Good Times and El Pollo

0.36

Correlation Coefficient

Good Times  El Pollo

Weak diversification

The 3 months correlation between Good and LOCO is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Good Times Restaurants and El Pollo Loco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on El Pollo Loco and Good Times 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 Good Times Restaurants are associated (or correlated) with El Pollo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of El Pollo Loco has no effect on the direction of Good Times i.e., Good Times and El Pollo go up and down completely randomly.

Pair Corralation between Good Times and El Pollo

Given the investment horizon of 90 days Good Times Restaurants is expected to generate 1.1 times more return on investment than El Pollo. However, Good Times is 1.1 times more volatile than El Pollo Loco. It trades about -0.02 of its potential returns per unit of risk. El Pollo Loco is currently generating about -0.1 per unit of risk. If you would invest  247.00  in Good Times Restaurants on December 26, 2024 and sell it today you would lose (10.00) from holding Good Times Restaurants or give up 4.05% of portfolio value over 90 days.

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

Good Times Restaurants  vs.  El Pollo Loco

Good Times Restaurants

Risk-Adjusted Performance

Very Weak

Over the last 90 days Good Times Restaurants has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Good Times is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

El Pollo Loco

Risk-Adjusted Performance

Very Weak

Over the last 90 days El Pollo Loco has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Good Times and El Pollo

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

The idea behind Good Times Restaurants and El Pollo Loco 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.