Correlation Between Star Equity and FAT Brands

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

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

Diversification Opportunities for Star Equity and FAT Brands

0.01

Correlation Coefficient

Star Equity  FAT Brands

Significant diversification

The 3 months correlation between Star and FAT is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Star Equity Holdings and FAT Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAT Brands and Star Equity 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 Star Equity Holdings are associated (or correlated) with FAT Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FAT Brands has no effect on the direction of Star Equity i.e., Star Equity and FAT Brands go up and down completely randomly.

Pair Corralation between Star Equity and FAT Brands

Assuming the 90 days horizon Star Equity is expected to generate 3.32 times less return on investment than FAT Brands. In addition to that, Star Equity is 1.43 times more volatile than FAT Brands. It trades about 0.04 of its total potential returns per unit of risk. FAT Brands is currently generating about 0.17 per unit of volatility. If you would invest  956.00  in FAT Brands on October 7, 2024 and sell it today you would earn a total of  41.00  from holding FAT Brands or generate 4.29% return on investment over 90 days.

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

Star Equity Holdings  vs.  FAT Brands

Star Equity Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Star Equity Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Star Equity is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

FAT Brands

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FAT Brands are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental drivers, FAT Brands may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Star Equity and FAT Brands

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

The idea behind Star Equity Holdings and FAT Brands 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.