Correlation Between FAT Brands and Brinker International

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

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

Diversification Opportunities for FAT Brands and Brinker International

0.01

Correlation Coefficient

FAT Brands  Brinker International

Significant diversification

The 3 months correlation between FAT and Brinker is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding FAT Brands and Brinker International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brinker International 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 Brinker International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brinker International has no effect on the direction of FAT Brands i.e., FAT Brands and Brinker International go up and down completely randomly.

Pair Corralation between FAT Brands and Brinker International

Assuming the 90 days horizon FAT Brands is expected to under-perform the Brinker International. But the preferred stock apears to be less risky and, when comparing its historical volatility, FAT Brands is 2.36 times less risky than Brinker International. The preferred stock trades about -0.01 of its potential returns per unit of risk. The Brinker International is currently generating about 0.42 of returns per unit of risk over similar time horizon. If you would invest  7,039  in Brinker International on September 13, 2024 and sell it today you would earn a total of  5,935  from holding Brinker International or generate 84.32% return on investment over 90 days.

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

FAT Brands  vs.  Brinker International

FAT Brands

Risk-Adjusted Performance

0 of 100

Very 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.

Brinker International

Risk-Adjusted Performance

32 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Brinker International are ranked lower than 32 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Brinker International unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FAT Brands and Brinker International

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

The idea behind FAT Brands and Brinker 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.