Correlation Between Almacenes Xito and FAT Brands

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

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

Diversification Opportunities for Almacenes Xito and FAT Brands

-0.38

Correlation Coefficient

Almacenes Xito  FAT Brands

Very good diversification

The 3 months correlation between Almacenes and FAT is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Almacenes xito SA and FAT Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAT Brands and Almacenes Xito 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 Almacenes xito SA are associated (or correlated) with FAT Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FAT Brands has no effect on the direction of Almacenes Xito i.e., Almacenes Xito and FAT Brands go up and down completely randomly.

Pair Corralation between Almacenes Xito and FAT Brands

Given the investment horizon of 90 days Almacenes xito SA is expected to under-perform the FAT Brands. In addition to that, Almacenes Xito is 2.05 times more volatile than FAT Brands. It trades about -0.05 of its total potential returns per unit of risk. FAT Brands is currently generating about 0.04 per unit of volatility. If you would invest  935.00  in FAT Brands on September 25, 2024 and sell it today you would earn a total of  23.00  from holding FAT Brands or generate 2.46% return on investment over 90 days.

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

Almacenes xito SA  vs.  FAT Brands

Almacenes xito SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Almacenes xito SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Almacenes Xito is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

FAT Brands

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FAT Brands are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with Almacenes Xito and FAT Brands

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

The idea behind Almacenes xito SA and FAT Brands 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.

Check out your portfolio center.

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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.