Correlation Between Wingstop and First Watch

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

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

Diversification Opportunities for Wingstop and First Watch

-0.4

Correlation Coefficient

Wingstop  First Watch

Very good diversification

The 3 months correlation between Wingstop and First is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Wingstop and First Watch Restaurant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Watch Restaurant and Wingstop 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 Wingstop are associated (or correlated) with First Watch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Watch Restaurant has no effect on the direction of Wingstop i.e., Wingstop and First Watch go up and down completely randomly.

Pair Corralation between Wingstop and First Watch

Given the investment horizon of 90 days Wingstop is expected to generate 0.41 times more return on investment than First Watch. However, Wingstop is 2.41 times less risky than First Watch. It trades about 0.23 of its potential returns per unit of risk. First Watch Restaurant is currently generating about -0.15 per unit of risk. If you would invest  35,455  in Wingstop on February 21, 2024 and sell it today you would earn a total of  2,829  from holding Wingstop or generate 7.98% return on investment over 90 days.

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

Wingstop  vs.  First Watch Restaurant

Wingstop

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Wingstop are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Wingstop reported solid returns over the last few months and may actually be approaching a breakup point.

First Watch Restaurant

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Watch Restaurant 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 nearly stable which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Wingstop and First Watch

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

The idea behind Wingstop and First Watch Restaurant 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.