Correlation Between Wendys and Potbelly

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Can any of the company-specific risk be diversified away by investing in both Wendys and Potbelly 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 Wendys and Potbelly into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Wendys Co and Potbelly Co, you can compare the effects of market volatilities on Wendys and Potbelly 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 Wendys with a short position of Potbelly. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wendys and Potbelly.

Diversification Opportunities for Wendys and Potbelly

-0.49
  Correlation Coefficient

Very good diversification

The 3 months correlation between Wendys and Potbelly is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding The Wendys Co and Potbelly Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Potbelly and Wendys 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 The Wendys Co are associated (or correlated) with Potbelly. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Potbelly has no effect on the direction of Wendys i.e., Wendys and Potbelly go up and down completely randomly.

Pair Corralation between Wendys and Potbelly

Considering the 90-day investment horizon The Wendys Co is expected to under-perform the Potbelly. But the stock apears to be less risky and, when comparing its historical volatility, The Wendys Co is 2.41 times less risky than Potbelly. The stock trades about -0.52 of its potential returns per unit of risk. The Potbelly Co is currently generating about -0.19 of returns per unit of risk over similar time horizon. If you would invest  1,018  in Potbelly Co on October 6, 2024 and sell it today you would lose (81.00) from holding Potbelly Co or give up 7.96% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

The Wendys Co  vs.  Potbelly Co

 Performance 
       Timeline  
The Wendys 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days The Wendys Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.
Potbelly 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Potbelly Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Potbelly sustained solid returns over the last few months and may actually be approaching a breakup point.

Wendys and Potbelly Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Wendys and Potbelly

The main advantage of trading using opposite Wendys and Potbelly positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wendys position performs unexpectedly, Potbelly 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 Potbelly will offset losses from the drop in Potbelly's long position.
The idea behind The Wendys Co and Potbelly Co 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..

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