Correlation Between North American and TEXAS ROADHOUSE

Can any of the company-specific risk be diversified away by investing in both North American 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 North American and TEXAS ROADHOUSE into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between North American Construction and TEXAS ROADHOUSE, you can compare the effects of market volatilities on North American 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 North American with a short position of TEXAS ROADHOUSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of North American and TEXAS ROADHOUSE.

Diversification Opportunities for North American and TEXAS ROADHOUSE

0.6

Correlation Coefficient

North American  TEXAS ROADHOUSE

Poor diversification

The 3 months correlation between North and TEXAS is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding North American Construction and TEXAS ROADHOUSE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TEXAS ROADHOUSE and North American 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 North American Construction 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 North American i.e., North American and TEXAS ROADHOUSE go up and down completely randomly.

Pair Corralation between North American and TEXAS ROADHOUSE

Assuming the 90 days horizon North American is expected to generate 1.11 times less return on investment than TEXAS ROADHOUSE. In addition to that, North American is 1.77 times more volatile than TEXAS ROADHOUSE. It trades about 0.05 of its total potential returns per unit of risk. TEXAS ROADHOUSE is currently generating about 0.09 per unit of volatility. If you would invest  8,837  in TEXAS ROADHOUSE on October 4, 2024 and sell it today you would earn a total of  8,468  from holding TEXAS ROADHOUSE or generate 95.82% return on investment over 90 days.

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

North American Construction  vs.  TEXAS ROADHOUSE

North American Const

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in North American Construction are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, North American reported solid returns over the last few months and may actually be approaching a breakup point.

TEXAS ROADHOUSE

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TEXAS ROADHOUSE are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, TEXAS ROADHOUSE may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with North American and TEXAS ROADHOUSE

The main advantage of trading using opposite North American and TEXAS ROADHOUSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if North American 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 North American Construction 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.

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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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.