Correlation Between El Pollo and Smart Share

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

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

Diversification Opportunities for El Pollo and Smart Share

-0.08

Correlation Coefficient

El Pollo  Smart Share

Good diversification

The 3 months correlation between LOCO and Smart is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding El Pollo Loco and Smart Share Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Smart Share Global and El Pollo 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 El Pollo Loco are associated (or correlated) with Smart Share. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Smart Share Global has no effect on the direction of El Pollo i.e., El Pollo and Smart Share go up and down completely randomly.

Pair Corralation between El Pollo and Smart Share

Given the investment horizon of 90 days El Pollo Loco is expected to under-perform the Smart Share. But the stock apears to be less risky and, when comparing its historical volatility, El Pollo Loco is 2.82 times less risky than Smart Share. The stock trades about -0.08 of its potential returns per unit of risk. The Smart Share Global is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  72.00  in Smart Share Global on December 27, 2024 and sell it today you would earn a total of  40.00  from holding Smart Share Global or generate 55.56% return on investment over 90 days.

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

El Pollo Loco  vs.  Smart Share Global

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.

Smart Share Global

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Smart Share Global are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Smart Share displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with El Pollo and Smart Share

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

The idea behind El Pollo Loco and Smart Share Global 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.