Correlation Between Estee Lauder and Cheesecake Factory

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

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

Diversification Opportunities for Estee Lauder and Cheesecake Factory

-0.71

Correlation Coefficient

Estee Lauder  Cheesecake Factory

Pay attention - limited upside

The 3 months correlation between Estee and Cheesecake is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Estee Lauder Companies 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 Estee Lauder 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 Estee Lauder Companies 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 Estee Lauder i.e., Estee Lauder and Cheesecake Factory go up and down completely randomly.

Pair Corralation between Estee Lauder and Cheesecake Factory

Allowing for the 90-day total investment horizon Estee Lauder Companies is expected to under-perform the Cheesecake Factory. In addition to that, Estee Lauder is 1.31 times more volatile than The Cheesecake Factory. It trades about -0.08 of its total potential returns per unit of risk. The Cheesecake Factory is currently generating about 0.05 per unit of volatility. If you would invest  3,289  in The Cheesecake Factory on October 5, 2024 and sell it today you would earn a total of  1,628  from holding The Cheesecake Factory or generate 49.5% return on investment over 90 days.

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

Estee Lauder Companies  vs.  The Cheesecake Factory

Estee Lauder Companies

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Estee Lauder Companies has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's essential indicators remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

The Cheesecake Factory

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Cheesecake Factory are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating forward-looking signals, Cheesecake Factory exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Estee Lauder and Cheesecake Factory

The main advantage of trading using opposite Estee Lauder and Cheesecake Factory positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Estee Lauder 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 Estee Lauder Companies 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.