Correlation Between Noble Romans and BJs Restaurants

Can any of the company-specific risk be diversified away by investing in both Noble Romans and BJs Restaurants 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 Noble Romans and BJs Restaurants into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Noble Romans and BJs Restaurants

0.37

Correlation Coefficient

Noble Romans  BJs Restaurants

Weak diversification

The 3 months correlation between Noble and BJs is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Noble Romans and BJs Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BJs Restaurants and Noble Romans 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 Noble Romans are associated (or correlated) with BJs Restaurants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BJs Restaurants has no effect on the direction of Noble Romans i.e., Noble Romans and BJs Restaurants go up and down completely randomly.

Pair Corralation between Noble Romans and BJs Restaurants

Given the investment horizon of 90 days Noble Romans is expected to generate 4.67 times more return on investment than BJs Restaurants. However, Noble Romans is 4.67 times more volatile than BJs Restaurants. It trades about 0.03 of its potential returns per unit of risk. BJs Restaurants is currently generating about 0.01 per unit of risk. If you would invest  35.00  in Noble Romans on December 26, 2024 and sell it today you would lose (4.00) from holding Noble Romans or give up 11.43% of portfolio value over 90 days.

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

Noble Romans  vs.  BJs Restaurants

Noble Romans

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Noble Romans are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Noble Romans displayed solid returns over the last few months and may actually be approaching a breakup point.

BJs Restaurants

Risk-Adjusted Performance

Very Weak

Over the last 90 days BJs Restaurants has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, BJs Restaurants is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Noble Romans and BJs Restaurants

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

The idea behind Noble Romans and BJs Restaurants 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.