Correlation Between Wendys and Tootsie Roll

Can any of the company-specific risk be diversified away by investing in both Wendys and Tootsie Roll 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 Tootsie Roll 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 Tootsie Roll Industries, you can compare the effects of market volatilities on Wendys and Tootsie Roll 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 Tootsie Roll. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wendys and Tootsie Roll.

Diversification Opportunities for Wendys and Tootsie Roll

-0.26

Correlation Coefficient

Wendys  Tootsie Roll

Very good diversification

The 3 months correlation between Wendys and Tootsie is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding The Wendys Co and Tootsie Roll Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tootsie Roll Industries 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 Tootsie Roll. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tootsie Roll Industries has no effect on the direction of Wendys i.e., Wendys and Tootsie Roll go up and down completely randomly.

Pair Corralation between Wendys and Tootsie Roll

Considering the 90-day investment horizon The Wendys Co is expected to generate 1.41 times more return on investment than Tootsie Roll. However, Wendys is 1.41 times more volatile than Tootsie Roll Industries. It trades about 0.08 of its potential returns per unit of risk. Tootsie Roll Industries is currently generating about 0.1 per unit of risk. If you would invest  1,653  in The Wendys Co on September 4, 2024 and sell it today you would earn a total of  153.00  from holding The Wendys Co or generate 9.26% return on investment over 90 days.

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

The Wendys Co  vs.  Tootsie Roll Industries

The Wendys

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Wendys Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent technical and fundamental indicators, Wendys may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Tootsie Roll Industries

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tootsie Roll Industries are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Tootsie Roll may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Wendys and Tootsie Roll

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

The idea behind The Wendys Co and Tootsie Roll Industries 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.