Correlation Between Smurfit WestRock and FAT Brands

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

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

Diversification Opportunities for Smurfit WestRock and FAT Brands

-0.04

Correlation Coefficient

Smurfit WestRock  FAT Brands

Good diversification

The 3 months correlation between Smurfit and FAT is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Smurfit WestRock plc and FAT Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAT Brands and Smurfit WestRock 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 Smurfit WestRock plc 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 Smurfit WestRock i.e., Smurfit WestRock and FAT Brands go up and down completely randomly.

Pair Corralation between Smurfit WestRock and FAT Brands

Allowing for the 90-day total investment horizon Smurfit WestRock plc is expected to under-perform the FAT Brands. In addition to that, Smurfit WestRock is 2.55 times more volatile than FAT Brands. It trades about -0.11 of its total potential returns per unit of risk. FAT Brands is currently generating about 0.06 per unit of volatility. If you would invest  915.00  in FAT Brands on December 27, 2024 and sell it today you would earn a total of  29.00  from holding FAT Brands or generate 3.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Smurfit WestRock plc  vs.  FAT Brands

Smurfit WestRock plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Smurfit WestRock plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

FAT Brands

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FAT Brands are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental drivers, FAT Brands is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Smurfit WestRock and FAT Brands

The main advantage of trading using opposite Smurfit WestRock and FAT Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Smurfit WestRock 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 Smurfit WestRock plc 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.