Correlation Between Cheesecake Factory and NextTrip

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

Diversification Opportunities for Cheesecake Factory and NextTrip

0.16

Correlation Coefficient

Cheesecake Factory  NextTrip

Average diversification

The 3 months correlation between Cheesecake and NextTrip is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding The Cheesecake Factory and NextTrip in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NextTrip 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 NextTrip. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NextTrip has no effect on the direction of Cheesecake Factory i.e., Cheesecake Factory and NextTrip go up and down completely randomly.

Pair Corralation between Cheesecake Factory and NextTrip

Given the investment horizon of 90 days Cheesecake Factory is expected to generate 2.22 times less return on investment than NextTrip. But when comparing it to its historical volatility, The Cheesecake Factory is 5.22 times less risky than NextTrip. It trades about 0.06 of its potential returns per unit of risk. NextTrip is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,070  in NextTrip on December 2, 2024 and sell it today you would lose (672.00) from holding NextTrip or give up 62.8% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.79%
Values	Daily Returns

The Cheesecake Factory  vs.  NextTrip

The Cheesecake Factory

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Cheesecake Factory are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating forward-looking signals, Cheesecake Factory may actually be approaching a critical reversion point that can send shares even higher in April 2025.

NextTrip

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NextTrip are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, NextTrip reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cheesecake Factory and NextTrip

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

The idea behind The Cheesecake Factory and NextTrip 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.