Correlation Between TEXAS ROADHOUSE and CPU SOFTWAREHOUSE

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

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

Diversification Opportunities for TEXAS ROADHOUSE and CPU SOFTWAREHOUSE

-0.37

Correlation Coefficient

TEXAS ROADHOUSE  CPU SOFTWAREHOUSE

Very good diversification

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

Pair Corralation between TEXAS ROADHOUSE and CPU SOFTWAREHOUSE

Assuming the 90 days trading horizon TEXAS ROADHOUSE is expected to generate 3.54 times less return on investment than CPU SOFTWAREHOUSE. But when comparing it to its historical volatility, TEXAS ROADHOUSE is 2.84 times less risky than CPU SOFTWAREHOUSE. It trades about 0.06 of its potential returns per unit of risk. CPU SOFTWAREHOUSE is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  90.00  in CPU SOFTWAREHOUSE on October 6, 2024 and sell it today you would earn a total of  10.00  from holding CPU SOFTWAREHOUSE or generate 11.11% return on investment over 90 days.

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

TEXAS ROADHOUSE  vs.  CPU SOFTWAREHOUSE

TEXAS ROADHOUSE

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TEXAS ROADHOUSE are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, TEXAS ROADHOUSE may actually be approaching a critical reversion point that can send shares even higher in February 2025.

CPU SOFTWAREHOUSE

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CPU SOFTWAREHOUSE are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, CPU SOFTWAREHOUSE may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with TEXAS ROADHOUSE and CPU SOFTWAREHOUSE

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

The idea behind TEXAS ROADHOUSE and CPU SOFTWAREHOUSE 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.