Correlation Between Nathans Famous and Texas Roadhouse

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

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

Diversification Opportunities for Nathans Famous and Texas Roadhouse

0.62

Correlation Coefficient

Nathans Famous  Texas Roadhouse

Poor diversification

The 3 months correlation between Nathans and Texas is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Nathans Famous and Texas Roadhouse in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Roadhouse and Nathans Famous 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 Nathans Famous 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 Nathans Famous i.e., Nathans Famous and Texas Roadhouse go up and down completely randomly.

Pair Corralation between Nathans Famous and Texas Roadhouse

Given the investment horizon of 90 days Nathans Famous is expected to under-perform the Texas Roadhouse. In addition to that, Nathans Famous is 1.29 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 0.05 per unit of volatility. If you would invest  17,514  in Texas Roadhouse on October 11, 2024 and sell it today you would earn a total of  691.00  from holding Texas Roadhouse or generate 3.95% return on investment over 90 days.

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

Nathans Famous  vs.  Texas Roadhouse

Nathans Famous

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nathans Famous has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Texas Roadhouse

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Roadhouse are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Texas Roadhouse is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Nathans Famous and Texas Roadhouse

The main advantage of trading using opposite Nathans Famous and Texas Roadhouse positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nathans Famous 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 Nathans Famous 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.