Correlation Between Good Times and Restaurant Brands

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

Diversification Opportunities for Good Times and Restaurant Brands

0.29

Correlation Coefficient

Good Times  Restaurant Brands

Modest diversification

The 3 months correlation between Good and Restaurant is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Good Times Restaurants and Restaurant Brands Internationa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Restaurant Brands 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 Restaurant Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Restaurant Brands has no effect on the direction of Good Times i.e., Good Times and Restaurant Brands go up and down completely randomly.

Pair Corralation between Good Times and Restaurant Brands

Given the investment horizon of 90 days Good Times Restaurants is expected to under-perform the Restaurant Brands. In addition to that, Good Times is 2.0 times more volatile than Restaurant Brands International. It trades about -0.05 of its total potential returns per unit of risk. Restaurant Brands International is currently generating about -0.01 per unit of volatility. If you would invest  6,936  in Restaurant Brands International on September 15, 2024 and sell it today you would lose (108.00) from holding Restaurant Brands International or give up 1.56% 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.  Restaurant Brands Internationa

Good Times Restaurants

Risk-Adjusted Performance

0 of 100

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 latest inconsistent performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Restaurant Brands

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Good Times and Restaurant Brands

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

The idea behind Good Times Restaurants and Restaurant Brands International 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.