Correlation Between TEXAS ROADHOUSE and Avanos Medical

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

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

Diversification Opportunities for TEXAS ROADHOUSE and Avanos Medical

0.6

Correlation Coefficient

TEXAS ROADHOUSE  Avanos Medical

Poor diversification

The 3 months correlation between TEXAS and Avanos is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding TEXAS ROADHOUSE and Avanos Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avanos Medical and TEXAS ROADHOUSE 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 TEXAS ROADHOUSE are associated (or correlated) with Avanos Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avanos Medical has no effect on the direction of TEXAS ROADHOUSE i.e., TEXAS ROADHOUSE and Avanos Medical go up and down completely randomly.

Pair Corralation between TEXAS ROADHOUSE and Avanos Medical

Assuming the 90 days trading horizon TEXAS ROADHOUSE is expected to generate 0.86 times more return on investment than Avanos Medical. However, TEXAS ROADHOUSE is 1.16 times less risky than Avanos Medical. It trades about -0.09 of its potential returns per unit of risk. Avanos Medical is currently generating about -0.1 per unit of risk. If you would invest  17,355  in TEXAS ROADHOUSE on December 22, 2024 and sell it today you would lose (1,640) from holding TEXAS ROADHOUSE or give up 9.45% of portfolio value over 90 days.

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

TEXAS ROADHOUSE  vs.  Avanos Medical

TEXAS ROADHOUSE

Risk-Adjusted Performance

Very Weak

Over the last 90 days TEXAS ROADHOUSE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Avanos Medical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Avanos Medical has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with TEXAS ROADHOUSE and Avanos Medical

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

The idea behind TEXAS ROADHOUSE and Avanos Medical 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.