Correlation Between NISOURCE and First Watch

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

By analyzing existing cross correlation between NISOURCE FIN P and First Watch Restaurant, you can compare the effects of market volatilities on NISOURCE and First Watch 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 NISOURCE with a short position of First Watch. Check out your portfolio center. Please also check ongoing floating volatility patterns of NISOURCE and First Watch.

Diversification Opportunities for NISOURCE and First Watch

-0.5

Correlation Coefficient

NISOURCE  First Watch

Very good diversification

The 3 months correlation between NISOURCE and First is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding NISOURCE FIN P and First Watch Restaurant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Watch Restaurant and NISOURCE 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 NISOURCE FIN P are associated (or correlated) with First Watch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Watch Restaurant has no effect on the direction of NISOURCE i.e., NISOURCE and First Watch go up and down completely randomly.

Pair Corralation between NISOURCE and First Watch

Assuming the 90 days trading horizon NISOURCE is expected to generate 15.47 times less return on investment than First Watch. But when comparing it to its historical volatility, NISOURCE FIN P is 2.56 times less risky than First Watch. It trades about 0.03 of its potential returns per unit of risk. First Watch Restaurant is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  1,344  in First Watch Restaurant on October 8, 2024 and sell it today you would earn a total of  638.00  from holding First Watch Restaurant or generate 47.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	67.74%
Values	Daily Returns

NISOURCE FIN P  vs.  First Watch Restaurant

NISOURCE FIN P

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NISOURCE FIN P are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, NISOURCE is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

First Watch Restaurant

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Watch Restaurant are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, First Watch reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with NISOURCE and First Watch

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

The idea behind NISOURCE FIN P and First Watch Restaurant 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.