Correlation Between Sweetgreen and Krispy Kreme

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

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

Diversification Opportunities for Sweetgreen and Krispy Kreme

0.38

Correlation Coefficient

Sweetgreen  Krispy Kreme

Weak diversification

The 3 months correlation between Sweetgreen and Krispy is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Sweetgreen and Krispy Kreme in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Krispy Kreme and Sweetgreen 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 Sweetgreen are associated (or correlated) with Krispy Kreme. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Krispy Kreme has no effect on the direction of Sweetgreen i.e., Sweetgreen and Krispy Kreme go up and down completely randomly.

Pair Corralation between Sweetgreen and Krispy Kreme

Allowing for the 90-day total investment horizon Sweetgreen is expected to under-perform the Krispy Kreme. In addition to that, Sweetgreen is 3.54 times more volatile than Krispy Kreme. It trades about -0.25 of its total potential returns per unit of risk. Krispy Kreme is currently generating about -0.43 per unit of volatility. If you would invest  1,092  in Krispy Kreme on September 27, 2024 and sell it today you would lose (121.00) from holding Krispy Kreme or give up 11.08% of portfolio value over 90 days.

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

Sweetgreen  vs.  Krispy Kreme

Sweetgreen

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sweetgreen has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Sweetgreen is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Krispy Kreme

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Krispy Kreme has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Sweetgreen and Krispy Kreme

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

The idea behind Sweetgreen and Krispy Kreme 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.