Correlation Between Wyndham Hotels and FAT Brands

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

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

Diversification Opportunities for Wyndham Hotels and FAT Brands

0.52

Correlation Coefficient

Wyndham Hotels  FAT Brands

Very weak diversification

The 3 months correlation between Wyndham and FAT is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Wyndham Hotels Resorts and FAT Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAT Brands and Wyndham Hotels 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 Wyndham Hotels Resorts 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 Wyndham Hotels i.e., Wyndham Hotels and FAT Brands go up and down completely randomly.

Pair Corralation between Wyndham Hotels and FAT Brands

Allowing for the 90-day total investment horizon Wyndham Hotels Resorts is expected to under-perform the FAT Brands. But the stock apears to be less risky and, when comparing its historical volatility, Wyndham Hotels Resorts is 3.64 times less risky than FAT Brands. The stock trades about -0.08 of its potential returns per unit of risk. The FAT Brands is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  287.00  in FAT Brands on December 24, 2024 and sell it today you would earn a total of  10.00  from holding FAT Brands or generate 3.48% return on investment over 90 days.

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

Wyndham Hotels Resorts  vs.  FAT Brands

Wyndham Hotels Resorts

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wyndham Hotels Resorts has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

FAT Brands

Risk-Adjusted Performance

Modest

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. Despite somewhat weak fundamental drivers, FAT Brands sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Wyndham Hotels and FAT Brands

The main advantage of trading using opposite Wyndham Hotels and FAT Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wyndham Hotels 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 Wyndham Hotels Resorts 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.