Correlation Between Potbelly and FAT Brands

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

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

Diversification Opportunities for Potbelly and FAT Brands

0.06

Correlation Coefficient

Potbelly  FAT Brands

Significant diversification

The 3 months correlation between Potbelly and FAT is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Potbelly Co and FAT Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAT Brands and Potbelly 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 Potbelly Co 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 Potbelly i.e., Potbelly and FAT Brands go up and down completely randomly.

Pair Corralation between Potbelly and FAT Brands

Given the investment horizon of 90 days Potbelly Co is expected to generate 0.65 times more return on investment than FAT Brands. However, Potbelly Co is 1.54 times less risky than FAT Brands. It trades about 0.05 of its potential returns per unit of risk. FAT Brands is currently generating about 0.03 per unit of risk. If you would invest  559.00  in Potbelly Co on September 13, 2024 and sell it today you would earn a total of  430.00  from holding Potbelly Co or generate 76.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Potbelly Co  vs.  FAT Brands

Potbelly

Risk-Adjusted Performance

9 of 100

OK

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

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. Despite somewhat weak fundamental drivers, FAT Brands may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Potbelly and FAT Brands

The main advantage of trading using opposite Potbelly and FAT Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Potbelly 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 Potbelly Co 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.