Correlation Between BJs Restaurants and Century Aluminum

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

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

Diversification Opportunities for BJs Restaurants and Century Aluminum

0.75

Correlation Coefficient

BJs Restaurants  Century Aluminum

Poor diversification

The 3 months correlation between BJs and Century is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding BJs Restaurants and Century Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Century Aluminum and BJs Restaurants 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 BJs Restaurants are associated (or correlated) with Century Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Century Aluminum has no effect on the direction of BJs Restaurants i.e., BJs Restaurants and Century Aluminum go up and down completely randomly.

Pair Corralation between BJs Restaurants and Century Aluminum

Given the investment horizon of 90 days BJs Restaurants is expected to generate 0.92 times more return on investment than Century Aluminum. However, BJs Restaurants is 1.08 times less risky than Century Aluminum. It trades about 0.01 of its potential returns per unit of risk. Century Aluminum is currently generating about -0.14 per unit of risk. If you would invest  3,581  in BJs Restaurants on September 16, 2024 and sell it today you would earn a total of  7.00  from holding BJs Restaurants or generate 0.2% return on investment over 90 days.

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

BJs Restaurants  vs.  Century Aluminum

BJs Restaurants

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Restaurants are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, BJs Restaurants demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Century Aluminum

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Century Aluminum are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Century Aluminum showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BJs Restaurants and Century Aluminum

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

The idea behind BJs Restaurants and Century Aluminum 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..