Correlation Between TEXAS ROADHOUSE and China Coal

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

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

Diversification Opportunities for TEXAS ROADHOUSE and China Coal

0.71

Correlation Coefficient

TEXAS ROADHOUSE  China Coal

Poor diversification

The 3 months correlation between TEXAS and China is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding TEXAS ROADHOUSE and China Coal Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Coal Energy 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 China Coal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Coal Energy has no effect on the direction of TEXAS ROADHOUSE i.e., TEXAS ROADHOUSE and China Coal go up and down completely randomly.

Pair Corralation between TEXAS ROADHOUSE and China Coal

Assuming the 90 days trading horizon TEXAS ROADHOUSE is expected to under-perform the China Coal. But the stock apears to be less risky and, when comparing its historical volatility, TEXAS ROADHOUSE is 1.26 times less risky than China Coal. The stock trades about -0.12 of its potential returns per unit of risk. The China Coal Energy is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  109.00  in China Coal Energy on December 20, 2024 and sell it today you would lose (12.00) from holding China Coal Energy or give up 11.01% 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.  China Coal Energy

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 fragile performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

China Coal Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days China Coal Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with TEXAS ROADHOUSE and China Coal

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

The idea behind TEXAS ROADHOUSE and China Coal Energy 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.