Correlation Between First Watch and Sonida Senior

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

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

Diversification Opportunities for First Watch and Sonida Senior

-0.1

Correlation Coefficient

First Watch  Sonida Senior

Good diversification

The 3 months correlation between First and Sonida is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding First Watch Restaurant and Sonida Senior Living in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonida Senior Living and First Watch 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 First Watch Restaurant are associated (or correlated) with Sonida Senior. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonida Senior Living has no effect on the direction of First Watch i.e., First Watch and Sonida Senior go up and down completely randomly.

Pair Corralation between First Watch and Sonida Senior

Given the investment horizon of 90 days First Watch Restaurant is expected to generate 0.96 times more return on investment than Sonida Senior. However, First Watch Restaurant is 1.05 times less risky than Sonida Senior. It trades about 0.08 of its potential returns per unit of risk. Sonida Senior Living is currently generating about -0.17 per unit of risk. If you would invest  1,866  in First Watch Restaurant on September 25, 2024 and sell it today you would earn a total of  62.00  from holding First Watch Restaurant or generate 3.32% return on investment over 90 days.

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

First Watch Restaurant  vs.  Sonida Senior Living

First Watch Restaurant

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in First Watch Restaurant are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, First Watch reported solid returns over the last few months and may actually be approaching a breakup point.

Sonida Senior Living

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sonida Senior Living has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's fundamental 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 First Watch and Sonida Senior

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

The idea behind First Watch Restaurant and Sonida Senior Living 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.