Correlation Between Potbelly and Noodles

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

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

Diversification Opportunities for Potbelly and Noodles

0.81

Correlation Coefficient

Potbelly  Noodles

Very poor diversification

The 3 months correlation between Potbelly and Noodles is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Potbelly Co and Noodles Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Noodles Company 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 Noodles. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Noodles Company has no effect on the direction of Potbelly i.e., Potbelly and Noodles go up and down completely randomly.

Pair Corralation between Potbelly and Noodles

Given the investment horizon of 90 days Potbelly is expected to generate 13.12 times less return on investment than Noodles. But when comparing it to its historical volatility, Potbelly Co is 1.91 times less risky than Noodles. It trades about 0.02 of its potential returns per unit of risk. Noodles Company is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  60.00  in Noodles Company on December 30, 2024 and sell it today you would earn a total of  53.00  from holding Noodles Company or generate 88.33% 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.  Noodles Company

Potbelly

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Potbelly Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Potbelly is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Noodles Company

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Noodles Company are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent essential indicators, Noodles unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Potbelly and Noodles

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

The idea behind Potbelly Co and Noodles Company 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.