Correlation Between Driven Brands and First Trust

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

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

Diversification Opportunities for Driven Brands and First Trust

0.86

Correlation Coefficient

Driven Brands  First Trust

Very poor diversification

The 3 months correlation between Driven and First is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Driven Brands Holdings and First Trust IndustrialsProduce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Industri and Driven 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 Driven Brands Holdings are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Industri has no effect on the direction of Driven Brands i.e., Driven Brands and First Trust go up and down completely randomly.

Pair Corralation between Driven Brands and First Trust

Given the investment horizon of 90 days Driven Brands Holdings is expected to generate 2.05 times more return on investment than First Trust. However, Driven Brands is 2.05 times more volatile than First Trust IndustrialsProducer. It trades about 0.15 of its potential returns per unit of risk. First Trust IndustrialsProducer is currently generating about 0.24 per unit of risk. If you would invest  1,407  in Driven Brands Holdings on August 31, 2024 and sell it today you would earn a total of  279.00  from holding Driven Brands Holdings or generate 19.83% return on investment over 90 days.

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

Driven Brands Holdings  vs.  First Trust IndustrialsProduce

Driven Brands Holdings

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Driven Brands Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Driven Brands displayed solid returns over the last few months and may actually be approaching a breakup point.

First Trust Industri

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in First Trust IndustrialsProducer are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, First Trust reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Driven Brands and First Trust

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

The idea behind Driven Brands Holdings and First Trust IndustrialsProducer 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.