Correlation Between FAT Brands and Solid Power

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

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

Diversification Opportunities for FAT Brands and Solid Power

-0.32

Correlation Coefficient

FAT Brands  Solid Power

Very good diversification

The 3 months correlation between FAT and Solid is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding FAT Brands and Solid Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solid Power 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 Solid Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solid Power has no effect on the direction of FAT Brands i.e., FAT Brands and Solid Power go up and down completely randomly.

Pair Corralation between FAT Brands and Solid Power

Considering the 90-day investment horizon FAT Brands is expected to generate 139.7 times less return on investment than Solid Power. But when comparing it to its historical volatility, FAT Brands is 3.1 times less risky than Solid Power. It trades about 0.01 of its potential returns per unit of risk. Solid Power is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  14.00  in Solid Power on April 24, 2025 and sell it today you would earn a total of  76.00  from holding Solid Power or generate 542.86% 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.  Solid Power

FAT Brands

Risk-Adjusted Performance

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Solid Power

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Solid Power are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Solid Power showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FAT Brands and Solid Power

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

The idea behind FAT Brands and Solid Power 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.