Correlation Between KAUFMAN ET and Texas Roadhouse

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

By analyzing existing cross correlation between KAUFMAN ET BROAD and Texas Roadhouse, you can compare the effects of market volatilities on KAUFMAN ET and Texas Roadhouse 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 KAUFMAN ET with a short position of Texas Roadhouse. Check out your portfolio center. Please also check ongoing floating volatility patterns of KAUFMAN ET and Texas Roadhouse.

Diversification Opportunities for KAUFMAN ET and Texas Roadhouse

-0.16

Correlation Coefficient

KAUFMAN ET  Texas Roadhouse

Good diversification

The 3 months correlation between KAUFMAN and Texas is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding KAUFMAN ET BROAD and Texas Roadhouse in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Roadhouse and KAUFMAN ET 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 KAUFMAN ET BROAD are associated (or correlated) with Texas Roadhouse. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Texas Roadhouse has no effect on the direction of KAUFMAN ET i.e., KAUFMAN ET and Texas Roadhouse go up and down completely randomly.

Pair Corralation between KAUFMAN ET and Texas Roadhouse

Assuming the 90 days trading horizon KAUFMAN ET BROAD is expected to under-perform the Texas Roadhouse. But the stock apears to be less risky and, when comparing its historical volatility, KAUFMAN ET BROAD is 1.08 times less risky than Texas Roadhouse. The stock trades about -0.01 of its potential returns per unit of risk. The Texas Roadhouse is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  14,637  in Texas Roadhouse on September 16, 2024 and sell it today you would earn a total of  3,178  from holding Texas Roadhouse or generate 21.71% return on investment over 90 days.

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

KAUFMAN ET BROAD  vs.  Texas Roadhouse

KAUFMAN ET BROAD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KAUFMAN ET BROAD has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical indicators, KAUFMAN ET is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Texas Roadhouse

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Roadhouse are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Texas Roadhouse reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KAUFMAN ET and Texas Roadhouse

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

The idea behind KAUFMAN ET BROAD and Texas Roadhouse 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.