Correlation Between Potbelly and Rave Restaurant

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

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

Diversification Opportunities for Potbelly and Rave Restaurant

-0.39

Correlation Coefficient

Potbelly  Rave Restaurant

Very good diversification

The 3 months correlation between Potbelly and Rave is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Potbelly Co and Rave Restaurant Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rave Restaurant Group 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 Rave Restaurant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rave Restaurant Group has no effect on the direction of Potbelly i.e., Potbelly and Rave Restaurant go up and down completely randomly.

Pair Corralation between Potbelly and Rave Restaurant

Given the investment horizon of 90 days Potbelly is expected to generate 1.46 times less return on investment than Rave Restaurant. In addition to that, Potbelly is 1.08 times more volatile than Rave Restaurant Group. It trades about 0.02 of its total potential returns per unit of risk. Rave Restaurant Group is currently generating about 0.04 per unit of volatility. If you would invest  264.00  in Rave Restaurant Group on December 29, 2024 and sell it today you would earn a total of  13.00  from holding Rave Restaurant Group or generate 4.92% return on investment over 90 days.

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

Potbelly Co  vs.  Rave Restaurant Group

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 weak basic indicators, Potbelly may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Rave Restaurant Group

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rave Restaurant Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Rave Restaurant may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Potbelly and Rave Restaurant

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

The idea behind Potbelly Co and Rave Restaurant Group 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.

Check out your portfolio center.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.