Correlation Between Vista Outdoor and FAT Brands

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

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

Diversification Opportunities for Vista Outdoor and FAT Brands

-0.51

Correlation Coefficient

Vista Outdoor  FAT Brands

Excellent diversification

The 3 months correlation between Vista and FAT is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Vista Outdoor and FAT Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAT Brands and Vista Outdoor 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 Vista Outdoor 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 Vista Outdoor i.e., Vista Outdoor and FAT Brands go up and down completely randomly.

Pair Corralation between Vista Outdoor and FAT Brands

Given the investment horizon of 90 days Vista Outdoor is expected to generate 1.25 times more return on investment than FAT Brands. However, Vista Outdoor is 1.25 times more volatile than FAT Brands. It trades about 0.15 of its potential returns per unit of risk. FAT Brands is currently generating about 0.05 per unit of risk. If you would invest  3,905  in Vista Outdoor on September 3, 2024 and sell it today you would earn a total of  558.00  from holding Vista Outdoor or generate 14.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.88%
Values	Daily Returns

Vista Outdoor  vs.  FAT Brands

Vista Outdoor

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vista Outdoor are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Vista Outdoor displayed solid returns over the last few months and may actually be approaching a breakup point.

FAT Brands

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FAT Brands are ranked lower than 3 (%) 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 Vista Outdoor and FAT Brands

The main advantage of trading using opposite Vista Outdoor and FAT Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vista Outdoor 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 Vista Outdoor 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.