Correlation Between Cheesecake Factory and Noble Plc

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

Diversification Opportunities for Cheesecake Factory and Noble Plc

0.23

Correlation Coefficient

Cheesecake Factory  Noble Plc

Modest diversification

The 3 months correlation between Cheesecake and Noble is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding The Cheesecake Factory and Noble plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Noble plc 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 Noble Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Noble plc has no effect on the direction of Cheesecake Factory i.e., Cheesecake Factory and Noble Plc go up and down completely randomly.

Pair Corralation between Cheesecake Factory and Noble Plc

Given the investment horizon of 90 days The Cheesecake Factory is expected to generate 0.88 times more return on investment than Noble Plc. However, The Cheesecake Factory is 1.14 times less risky than Noble Plc. It trades about 0.03 of its potential returns per unit of risk. Noble plc is currently generating about -0.07 per unit of risk. If you would invest  4,721  in The Cheesecake Factory on December 21, 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 Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

The Cheesecake Factory  vs.  Noble plc

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.

Noble plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Noble plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Cheesecake Factory and Noble Plc

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

The idea behind The Cheesecake Factory and Noble plc 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.