Correlation Between Potbelly and Brinker International

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

By analyzing existing cross correlation between Potbelly Co and Brinker International, you can compare the effects of market volatilities on Potbelly and Brinker International 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 Potbelly with a short position of Brinker International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Potbelly and Brinker International.

Diversification Opportunities for Potbelly and Brinker International

0.83

Correlation Coefficient

Potbelly  Brinker International

Very poor diversification

The 3 months correlation between Potbelly and Brinker is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Potbelly Co and Brinker International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brinker International and Potbelly 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 Potbelly Co are associated (or correlated) with Brinker International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brinker International has no effect on the direction of Potbelly i.e., Potbelly and Brinker International go up and down completely randomly.

Pair Corralation between Potbelly and Brinker International

Given the investment horizon of 90 days Potbelly Co is expected to under-perform the Brinker International. But the stock apears to be less risky and, when comparing its historical volatility, Potbelly Co is 1.96 times less risky than Brinker International. The stock trades about -0.11 of its potential returns per unit of risk. The Brinker International is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  15,182  in Brinker International on November 28, 2024 and sell it today you would earn a total of  401.00  from holding Brinker International or generate 2.64% return on investment over 90 days.

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

Potbelly Co  vs.  Brinker International

Potbelly

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Potbelly Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Potbelly sustained solid returns over the last few months and may actually be approaching a breakup point.

Brinker International

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brinker International are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Brinker International unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Potbelly and Brinker International

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

The idea behind Potbelly Co and Brinker 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.