Correlation Between Cheesecake Factory and Jiangsu Expressway

Can any of the company-specific risk be diversified away by investing in both Cheesecake Factory and Jiangsu Expressway 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 Jiangsu Expressway 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 Jiangsu Expressway, you can compare the effects of market volatilities on Cheesecake Factory and Jiangsu Expressway 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 Jiangsu Expressway. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cheesecake Factory and Jiangsu Expressway.

Diversification Opportunities for Cheesecake Factory and Jiangsu Expressway

-0.05

Correlation Coefficient

Cheesecake Factory  Jiangsu Expressway

Good diversification

The 3 months correlation between Cheesecake and Jiangsu is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding The Cheesecake Factory and Jiangsu Expressway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jiangsu Expressway 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 Jiangsu Expressway. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jiangsu Expressway has no effect on the direction of Cheesecake Factory i.e., Cheesecake Factory and Jiangsu Expressway go up and down completely randomly.

Pair Corralation between Cheesecake Factory and Jiangsu Expressway

Given the investment horizon of 90 days The Cheesecake Factory is expected to generate 1.5 times more return on investment than Jiangsu Expressway. However, Cheesecake Factory is 1.5 times more volatile than Jiangsu Expressway. It trades about 0.03 of its potential returns per unit of risk. Jiangsu Expressway is currently generating about -0.06 per unit of risk. If you would invest  4,721  in The Cheesecake Factory on December 22, 2024 and sell it today you would earn a total of  149.00  from holding The Cheesecake Factory or generate 3.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

The Cheesecake Factory  vs.  Jiangsu Expressway

The Cheesecake Factory

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Cheesecake Factory are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward-looking signals, Cheesecake Factory is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Jiangsu Expressway

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Cheesecake Factory and Jiangsu Expressway

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

The idea behind The Cheesecake Factory and Jiangsu Expressway 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.