Correlation Between Wingstop and Restaurant Brands

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

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

Diversification Opportunities for Wingstop and Restaurant Brands

0.7

Correlation Coefficient

Wingstop  Restaurant Brands

Poor diversification

The 3 months correlation between Wingstop and Restaurant is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Wingstop and Restaurant Brands Internationa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Restaurant Brands and Wingstop 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 Wingstop are associated (or correlated) with Restaurant Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Restaurant Brands has no effect on the direction of Wingstop i.e., Wingstop and Restaurant Brands go up and down completely randomly.

Pair Corralation between Wingstop and Restaurant Brands

Given the investment horizon of 90 days Wingstop is expected to generate 1.91 times more return on investment than Restaurant Brands. However, Wingstop is 1.91 times more volatile than Restaurant Brands International. It trades about 0.07 of its potential returns per unit of risk. Restaurant Brands International is currently generating about 0.02 per unit of risk. If you would invest  14,284  in Wingstop on September 28, 2024 and sell it today you would earn a total of  14,253  from holding Wingstop or generate 99.78% return on investment over 90 days.

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

Wingstop  vs.  Restaurant Brands Internationa

Wingstop

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wingstop has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Restaurant Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Restaurant Brands International has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest unfluctuating performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Wingstop and Restaurant Brands

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

The idea behind Wingstop and Restaurant Brands 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.