Correlation Between ARISTOCRAT LEISURE and Texas Roadhouse

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

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

Diversification Opportunities for ARISTOCRAT LEISURE and Texas Roadhouse

0.39

Correlation Coefficient

ARISTOCRAT LEISURE  Texas Roadhouse

Weak diversification

The 3 months correlation between ARISTOCRAT and Texas is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding ARISTOCRAT LEISURE and Texas Roadhouse in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Roadhouse and ARISTOCRAT LEISURE 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 ARISTOCRAT LEISURE 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 ARISTOCRAT LEISURE i.e., ARISTOCRAT LEISURE and Texas Roadhouse go up and down completely randomly.

Pair Corralation between ARISTOCRAT LEISURE and Texas Roadhouse

Assuming the 90 days trading horizon ARISTOCRAT LEISURE is expected to under-perform the Texas Roadhouse. But the stock apears to be less risky and, when comparing its historical volatility, ARISTOCRAT LEISURE is 1.21 times less risky than Texas Roadhouse. The stock trades about -0.07 of its potential returns per unit of risk. The Texas Roadhouse is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  17,320  in Texas Roadhouse on December 31, 2024 and sell it today you would lose (1,230) from holding Texas Roadhouse or give up 7.1% of portfolio value over 90 days.

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

ARISTOCRAT LEISURE  vs.  Texas Roadhouse

ARISTOCRAT LEISURE

Risk-Adjusted Performance

Very Weak

Over the last 90 days ARISTOCRAT LEISURE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Texas Roadhouse

Risk-Adjusted Performance

Very Weak

Over the last 90 days Texas Roadhouse has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Texas Roadhouse is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with ARISTOCRAT LEISURE and Texas Roadhouse

The main advantage of trading using opposite ARISTOCRAT LEISURE and Texas Roadhouse positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ARISTOCRAT LEISURE 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 ARISTOCRAT LEISURE 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.