Correlation Between Papa Johns and Rave Restaurant

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

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

Diversification Opportunities for Papa Johns and Rave Restaurant

0.6

Correlation Coefficient

Papa Johns  Rave Restaurant

Poor diversification

The 3 months correlation between Papa and Rave is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Papa Johns International 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 Papa Johns 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 Papa Johns International 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 Papa Johns i.e., Papa Johns and Rave Restaurant go up and down completely randomly.

Pair Corralation between Papa Johns and Rave Restaurant

Given the investment horizon of 90 days Papa Johns International is expected to under-perform the Rave Restaurant. But the stock apears to be less risky and, when comparing its historical volatility, Papa Johns International is 1.41 times less risky than Rave Restaurant. The stock trades about -0.08 of its potential returns per unit of risk. The Rave Restaurant Group is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  243.00  in Rave Restaurant Group on October 21, 2024 and sell it today you would earn a total of  19.00  from holding Rave Restaurant Group or generate 7.82% return on investment over 90 days.

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

Papa Johns International  vs.  Rave Restaurant Group

Papa Johns International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Papa Johns International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Rave Restaurant Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rave Restaurant Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Rave Restaurant is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Papa Johns and Rave Restaurant

The main advantage of trading using opposite Papa Johns and Rave Restaurant positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Papa Johns 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 Papa Johns International 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.

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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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.