Correlation Between Cheesecake Factory and Dominos Pizza

Can any of the company-specific risk be diversified away by investing in both Cheesecake Factory and Dominos Pizza 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 Cheesecake Factory and Dominos Pizza into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The Cheesecake Factory and Dominos Pizza, you can compare the effects of market volatilities on Cheesecake Factory and Dominos Pizza 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 Cheesecake Factory with a short position of Dominos Pizza. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cheesecake Factory and Dominos Pizza.

Diversification Opportunities for Cheesecake Factory and Dominos Pizza

0.82

Correlation Coefficient

Cheesecake Factory  Dominos Pizza

Very poor diversification

The 3 months correlation between Cheesecake and Dominos is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding The Cheesecake Factory and Dominos Pizza in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dominos Pizza and Cheesecake Factory 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 The Cheesecake Factory are associated (or correlated) with Dominos Pizza. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dominos Pizza has no effect on the direction of Cheesecake Factory i.e., Cheesecake Factory and Dominos Pizza go up and down completely randomly.

Pair Corralation between Cheesecake Factory and Dominos Pizza

Given the investment horizon of 90 days The Cheesecake Factory is expected to generate 1.18 times more return on investment than Dominos Pizza. However, Cheesecake Factory is 1.18 times more volatile than Dominos Pizza. It trades about 0.06 of its potential returns per unit of risk. Dominos Pizza is currently generating about 0.04 per unit of risk. If you would invest  3,020  in The Cheesecake Factory on September 13, 2024 and sell it today you would earn a total of  1,976  from holding The Cheesecake Factory or generate 65.43% return on investment over 90 days.

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

The Cheesecake Factory  vs.  Dominos Pizza

The Cheesecake Factory

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Cheesecake Factory are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating forward-looking signals, Cheesecake Factory exhibited solid returns over the last few months and may actually be approaching a breakup point.

Dominos Pizza

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dominos Pizza are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Dominos Pizza showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cheesecake Factory and Dominos Pizza

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

The idea behind The Cheesecake Factory and Dominos Pizza 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.