Correlation Between Arcos Dorados and BJs Restaurants

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

By analyzing existing cross correlation between Arcos Dorados Holdings and BJs Restaurants, you can compare the effects of market volatilities on Arcos Dorados and BJs Restaurants 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 Arcos Dorados with a short position of BJs Restaurants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Arcos Dorados and BJs Restaurants.

Diversification Opportunities for Arcos Dorados and BJs Restaurants

0.39

Correlation Coefficient

Arcos Dorados  BJs Restaurants

Weak diversification

The 3 months correlation between Arcos and BJs is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding Arcos Dorados Holdings and BJs Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BJs Restaurants and Arcos Dorados 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 Arcos Dorados Holdings are associated (or correlated) with BJs Restaurants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BJs Restaurants has no effect on the direction of Arcos Dorados i.e., Arcos Dorados and BJs Restaurants go up and down completely randomly.

Pair Corralation between Arcos Dorados and BJs Restaurants

Given the investment horizon of 90 days Arcos Dorados Holdings is expected to under-perform the BJs Restaurants. But the stock apears to be less risky and, when comparing its historical volatility, Arcos Dorados Holdings is 1.05 times less risky than BJs Restaurants. The stock trades about -0.04 of its potential returns per unit of risk. The BJs Restaurants is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,733  in BJs Restaurants on December 2, 2024 and sell it today you would earn a total of  80.00  from holding BJs Restaurants or generate 2.14% return on investment over 90 days.

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

Arcos Dorados Holdings  vs.  BJs Restaurants

Arcos Dorados Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Arcos Dorados Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Arcos Dorados is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

BJs Restaurants

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Restaurants are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, BJs Restaurants is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Arcos Dorados and BJs Restaurants

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

The idea behind Arcos Dorados Holdings and BJs Restaurants 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.