Correlation Between FAT Brands and Caesars Entertainment

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

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

Diversification Opportunities for FAT Brands and Caesars Entertainment

-0.31

Correlation Coefficient

FAT Brands  Caesars Entertainment

Very good diversification

The 3 months correlation between FAT and Caesars is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding FAT Brands and Caesars Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caesars Entertainment and FAT Brands 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 FAT Brands are associated (or correlated) with Caesars Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caesars Entertainment has no effect on the direction of FAT Brands i.e., FAT Brands and Caesars Entertainment go up and down completely randomly.

Pair Corralation between FAT Brands and Caesars Entertainment

Considering the 90-day investment horizon FAT Brands is expected to under-perform the Caesars Entertainment. But the stock apears to be less risky and, when comparing its historical volatility, FAT Brands is 1.15 times less risky than Caesars Entertainment. The stock trades about -0.02 of its potential returns per unit of risk. The Caesars Entertainment is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,899  in Caesars Entertainment on June 22, 2024 and sell it today you would earn a total of  246.00  from holding Caesars Entertainment or generate 6.31% return on investment over 90 days.

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

FAT Brands  vs.  Caesars Entertainment

FAT Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FAT Brands has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, FAT Brands is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Caesars Entertainment

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Caesars Entertainment are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Caesars Entertainment may actually be approaching a critical reversion point that can send shares even higher in October 2024.

Pair Trading with FAT Brands and Caesars Entertainment

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

The idea behind FAT Brands and Caesars Entertainment 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.

Check out your portfolio center.

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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.