Correlation Between Cogent Communications and Texas Roadhouse

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

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

Diversification Opportunities for Cogent Communications and Texas Roadhouse

0.42

Correlation Coefficient

Cogent Communications  Texas Roadhouse

Very weak diversification

The 3 months correlation between Cogent and Texas is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Cogent Communications Holdings and Texas Roadhouse in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Roadhouse and Cogent Communications 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 Cogent Communications Holdings 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 Cogent Communications i.e., Cogent Communications and Texas Roadhouse go up and down completely randomly.

Pair Corralation between Cogent Communications and Texas Roadhouse

Assuming the 90 days trading horizon Cogent Communications Holdings is expected to under-perform the Texas Roadhouse. But the stock apears to be less risky and, when comparing its historical volatility, Cogent Communications Holdings is 1.14 times less risky than Texas Roadhouse. The stock trades about -0.04 of its potential returns per unit of risk. The Texas Roadhouse is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  17,420  in Texas Roadhouse on October 26, 2024 and sell it today you would lose (230.00) from holding Texas Roadhouse or give up 1.32% of portfolio value over 90 days.

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

Cogent Communications Holdings  vs.  Texas Roadhouse

Cogent Communications

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cogent Communications Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, Cogent Communications is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Texas Roadhouse

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Texas Roadhouse has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Texas Roadhouse is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Cogent Communications and Texas Roadhouse

The main advantage of trading using opposite Cogent Communications and Texas Roadhouse positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cogent Communications 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 Cogent Communications Holdings 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.