Correlation Between Restaurant Brands and Papa Johns

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

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

Diversification Opportunities for Restaurant Brands and Papa Johns

0.55

Correlation Coefficient

Restaurant Brands  Papa Johns

Very weak diversification

The 3 months correlation between Restaurant and Papa is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Restaurant Brands Internationa and Papa Johns International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Papa Johns International and Restaurant 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 Restaurant Brands International are associated (or correlated) with Papa Johns. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Papa Johns International has no effect on the direction of Restaurant Brands i.e., Restaurant Brands and Papa Johns go up and down completely randomly.

Pair Corralation between Restaurant Brands and Papa Johns

Considering the 90-day investment horizon Restaurant Brands International is not expected to generate positive returns. However, Restaurant Brands International is 1.83 times less risky than Papa Johns. It waists most of its returns potential to compensate for thr risk taken. Papa Johns is generating about -0.05 per unit of risk. If you would invest  6,529  in Restaurant Brands International on January 16, 2025 and sell it today you would lose (304.00) from holding Restaurant Brands International or give up 4.66% of portfolio value over 90 days.

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

Restaurant Brands Internationa  vs.  Papa Johns International

Restaurant Brands

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Restaurant Brands International are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Restaurant Brands is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Papa Johns International

Risk-Adjusted Performance

Very Weak

Over the last 90 days Papa Johns International has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Restaurant Brands and Papa Johns

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

The idea behind Restaurant Brands International and Papa Johns International 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.