Correlation Between RBC Bearings and Cheesecake Factory

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

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

Diversification Opportunities for RBC Bearings and Cheesecake Factory

0.82

Correlation Coefficient

RBC Bearings  Cheesecake Factory

Very poor diversification

The 3 months correlation between RBC and Cheesecake is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding RBC Bearings Incorporated 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 RBC Bearings 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 RBC Bearings Incorporated 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 RBC Bearings i.e., RBC Bearings and Cheesecake Factory go up and down completely randomly.

Pair Corralation between RBC Bearings and Cheesecake Factory

Considering the 90-day investment horizon RBC Bearings is expected to generate 1.27 times less return on investment than Cheesecake Factory. But when comparing it to its historical volatility, RBC Bearings Incorporated is 1.26 times less risky than Cheesecake Factory. It trades about 0.05 of its potential returns per unit of risk. The Cheesecake Factory is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,047  in The Cheesecake Factory on September 23, 2024 and sell it today you would earn a total of  1,790  from holding The Cheesecake Factory or generate 58.75% return on investment over 90 days.

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

RBC Bearings Incorporated  vs.  The Cheesecake Factory

RBC Bearings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in RBC Bearings Incorporated are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, RBC Bearings is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

The Cheesecake Factory

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Cheesecake Factory are ranked lower than 11 (%) 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 RBC Bearings and Cheesecake Factory

The main advantage of trading using opposite RBC Bearings and Cheesecake Factory positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RBC Bearings 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 RBC Bearings Incorporated 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.