Correlation Between Diageo PLC and Cheesecake Factory

Can any of the company-specific risk be diversified away by investing in both Diageo PLC and Cheesecake Factory 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 Diageo PLC and Cheesecake Factory into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Diageo PLC ADR and The Cheesecake Factory, you can compare the effects of market volatilities on Diageo PLC and Cheesecake Factory 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 Diageo PLC with a short position of Cheesecake Factory. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diageo PLC and Cheesecake Factory.

Diversification Opportunities for Diageo PLC and Cheesecake Factory

-0.31

Correlation Coefficient

Diageo PLC  Cheesecake Factory

Very good diversification

The 3 months correlation between Diageo and Cheesecake is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and The Cheesecake Factory in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Cheesecake Factory and Diageo PLC 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 Diageo PLC ADR are associated (or correlated) with Cheesecake Factory. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Cheesecake Factory has no effect on the direction of Diageo PLC i.e., Diageo PLC and Cheesecake Factory go up and down completely randomly.

Pair Corralation between Diageo PLC and Cheesecake Factory

Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the Cheesecake Factory. But the stock apears to be less risky and, when comparing its historical volatility, Diageo PLC ADR is 1.25 times less risky than Cheesecake Factory. The stock trades about -0.13 of its potential returns per unit of risk. The The Cheesecake Factory is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  4,811  in The Cheesecake Factory on December 20, 2024 and sell it today you would earn a total of  16.00  from holding The Cheesecake Factory or generate 0.33% return on investment over 90 days.

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

Diageo PLC ADR  vs.  The Cheesecake Factory

Diageo PLC ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diageo PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

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 1 (%) 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.

Pair Trading with Diageo PLC and Cheesecake Factory

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

The idea behind Diageo PLC ADR and The Cheesecake Factory 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.