Correlation Between BJs Restaurants and El Pollo

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

By analyzing existing cross correlation between BJs Restaurants and El Pollo Loco, you can compare the effects of market volatilities on BJs Restaurants and El Pollo 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 El Pollo. Check out your portfolio center. Please also check ongoing floating volatility patterns of BJs Restaurants and El Pollo.

Diversification Opportunities for BJs Restaurants and El Pollo

0.45

Correlation Coefficient

BJs Restaurants  El Pollo

Very weak diversification

The 3 months correlation between BJs and LOCO is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding BJs Restaurants and El Pollo Loco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on El Pollo Loco 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 El Pollo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of El Pollo Loco has no effect on the direction of BJs Restaurants i.e., BJs Restaurants and El Pollo go up and down completely randomly.

Pair Corralation between BJs Restaurants and El Pollo

Given the investment horizon of 90 days BJs Restaurants is expected to generate 1.28 times more return on investment than El Pollo. However, BJs Restaurants is 1.28 times more volatile than El Pollo Loco. It trades about 0.01 of its potential returns per unit of risk. El Pollo Loco is currently generating about -0.09 per unit of risk. If you would invest  3,562  in BJs Restaurants on December 26, 2024 and sell it today you would earn a total of  10.00  from holding BJs Restaurants or generate 0.28% return on investment over 90 days.

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

BJs Restaurants  vs.  El Pollo Loco

BJs Restaurants

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Restaurants are ranked lower than 1 (%) 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 current stock price confusion, may contribute to short-horizon losses for the traders.

El Pollo Loco

Risk-Adjusted Performance

Very Weak

Over the last 90 days El Pollo Loco has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with BJs Restaurants and El Pollo

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

The idea behind BJs Restaurants and El Pollo Loco 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.