Correlation Between Nathans Famous and FAT Brands

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

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

Diversification Opportunities for Nathans Famous and FAT Brands

-0.17

Correlation Coefficient

Nathans Famous  FAT Brands

Good diversification

The 3 months correlation between Nathans and FAT is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Nathans Famous and FAT Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAT Brands and Nathans Famous 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 Nathans Famous 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 Nathans Famous i.e., Nathans Famous and FAT Brands go up and down completely randomly.

Pair Corralation between Nathans Famous and FAT Brands

Given the investment horizon of 90 days Nathans Famous is expected to generate 0.96 times more return on investment than FAT Brands. However, Nathans Famous is 1.05 times less risky than FAT Brands. It trades about 0.03 of its potential returns per unit of risk. FAT Brands is currently generating about -0.04 per unit of risk. If you would invest  7,654  in Nathans Famous on September 12, 2024 and sell it today you would earn a total of  907.00  from holding Nathans Famous or generate 11.85% return on investment over 90 days.

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

Nathans Famous  vs.  FAT Brands

Nathans Famous

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nathans Famous are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, Nathans Famous may actually be approaching a critical reversion point that can send shares even higher in January 2025.

FAT Brands

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FAT Brands are ranked lower than 2 (%) 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 Nathans Famous and FAT Brands

The main advantage of trading using opposite Nathans Famous and FAT Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nathans Famous 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 Nathans Famous 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.

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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.