Correlation Between Cardinal Health and Texas Roadhouse

Can any of the company-specific risk be diversified away by investing in both Cardinal Health and Texas Roadhouse 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 Cardinal Health and Texas Roadhouse into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cardinal Health and Texas Roadhouse, you can compare the effects of market volatilities on Cardinal Health and Texas Roadhouse 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 Cardinal Health with a short position of Texas Roadhouse. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cardinal Health and Texas Roadhouse.

Diversification Opportunities for Cardinal Health and Texas Roadhouse

0.33

Correlation Coefficient

Cardinal Health  Texas Roadhouse

Weak diversification

The 3 months correlation between Cardinal and Texas is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Cardinal Health and Texas Roadhouse in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Roadhouse and Cardinal Health 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 Cardinal Health are associated (or correlated) with Texas Roadhouse. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Texas Roadhouse has no effect on the direction of Cardinal Health i.e., Cardinal Health and Texas Roadhouse go up and down completely randomly.

Pair Corralation between Cardinal Health and Texas Roadhouse

Assuming the 90 days horizon Cardinal Health is expected to generate 1.12 times more return on investment than Texas Roadhouse. However, Cardinal Health is 1.12 times more volatile than Texas Roadhouse. It trades about 0.17 of its potential returns per unit of risk. Texas Roadhouse is currently generating about -0.01 per unit of risk. If you would invest  10,205  in Cardinal Health on October 26, 2024 and sell it today you would earn a total of  2,120  from holding Cardinal Health or generate 20.77% return on investment over 90 days.

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

Cardinal Health  vs.  Texas Roadhouse

Cardinal Health

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cardinal Health are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Cardinal Health reported solid returns over the last few months and may actually be approaching a breakup point.

Texas Roadhouse

Risk-Adjusted Performance

0 of 100

Insignificant

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

Pair Trading with Cardinal Health and Texas Roadhouse

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

The idea behind Cardinal Health and Texas Roadhouse 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.