Correlation Between Potbelly and El Pollo

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

By analyzing existing cross correlation between Potbelly Co and El Pollo Loco, you can compare the effects of market volatilities on Potbelly and El Pollo 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 El Pollo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Potbelly and El Pollo.

Diversification Opportunities for Potbelly and El Pollo

-0.6

Correlation Coefficient

Potbelly  El Pollo

Excellent diversification

The 3 months correlation between Potbelly and LOCO is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Potbelly Co and El Pollo Loco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on El Pollo Loco 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 El Pollo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of El Pollo Loco has no effect on the direction of Potbelly i.e., Potbelly and El Pollo go up and down completely randomly.

Pair Corralation between Potbelly and El Pollo

Given the investment horizon of 90 days Potbelly Co is expected to under-perform the El Pollo. But the stock apears to be less risky and, when comparing its historical volatility, Potbelly Co is 1.17 times less risky than El Pollo. The stock trades about -0.26 of its potential returns per unit of risk. The El Pollo Loco is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  898.00  in El Pollo Loco on March 5, 2024 and sell it today you would earn a total of  170.00  from holding El Pollo Loco or generate 18.93% return on investment over 90 days.

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

Potbelly Co  vs.  El Pollo Loco

Potbelly

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Potbelly Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

El Pollo Loco

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in El Pollo Loco are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, El Pollo displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Potbelly and El Pollo

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

The idea behind Potbelly Co and El Pollo Loco 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.