Correlation Between FAT Brands and Potbelly

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

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

Diversification Opportunities for FAT Brands and Potbelly

0.3

Correlation Coefficient

FAT Brands  Potbelly

Weak diversification

The 3 months correlation between FAT and Potbelly is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding FAT Brands and Potbelly Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Potbelly 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 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 FAT Brands i.e., FAT Brands and Potbelly go up and down completely randomly.

Pair Corralation between FAT Brands and Potbelly

Assuming the 90 days horizon FAT Brands is expected to generate 0.87 times more return on investment than Potbelly. However, FAT Brands is 1.15 times less risky than Potbelly. It trades about 0.23 of its potential returns per unit of risk. Potbelly Co is currently generating about -0.03 per unit of risk. If you would invest  904.00  in FAT Brands on September 17, 2024 and sell it today you would earn a total of  55.00  from holding FAT Brands or generate 6.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

FAT Brands  vs.  Potbelly Co

FAT Brands

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days FAT Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, FAT Brands is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Potbelly

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Potbelly Co are ranked lower than 8 (%) 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.

Pair Trading with FAT Brands and Potbelly

The main advantage of trading using opposite FAT Brands and Potbelly positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FAT Brands 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 FAT Brands 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.