Correlation Between Cheesecake Factory and Papa Johns

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

Diversification Opportunities for Cheesecake Factory and Papa Johns

0.13

Correlation Coefficient

Cheesecake Factory  Papa Johns

Average diversification

The 3 months correlation between Cheesecake and Papa is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding The Cheesecake Factory and Papa Johns International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Papa Johns International 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 Papa Johns. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Papa Johns International has no effect on the direction of Cheesecake Factory i.e., Cheesecake Factory and Papa Johns go up and down completely randomly.

Pair Corralation between Cheesecake Factory and Papa Johns

Given the investment horizon of 90 days Cheesecake Factory is expected to generate 4.13 times less return on investment than Papa Johns. But when comparing it to its historical volatility, The Cheesecake Factory is 1.75 times less risky than Papa Johns. It trades about 0.03 of its potential returns per unit of risk. Papa Johns International is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,862  in Papa Johns International on December 23, 2024 and sell it today you would earn a total of  610.00  from holding Papa Johns International or generate 15.79% return on investment over 90 days.

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

The Cheesecake Factory  vs.  Papa Johns International

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.

Papa Johns International

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Papa Johns International are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Papa Johns sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cheesecake Factory and Papa Johns

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

The idea behind The Cheesecake Factory and Papa Johns International 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.