Correlation Between TEXAS ROADHOUSE and Canadian National

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

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

Diversification Opportunities for TEXAS ROADHOUSE and Canadian National

0.41

Correlation Coefficient

TEXAS ROADHOUSE  Canadian National

Very weak diversification

The 3 months correlation between TEXAS and Canadian is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding TEXAS ROADHOUSE and Canadian National Railway in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian National Railway 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 Canadian National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian National Railway has no effect on the direction of TEXAS ROADHOUSE i.e., TEXAS ROADHOUSE and Canadian National go up and down completely randomly.

Pair Corralation between TEXAS ROADHOUSE and Canadian National

Assuming the 90 days trading horizon TEXAS ROADHOUSE is expected to generate 4.71 times less return on investment than Canadian National. But when comparing it to its historical volatility, TEXAS ROADHOUSE is 1.04 times less risky than Canadian National. It trades about 0.04 of its potential returns per unit of risk. Canadian National Railway is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  9,768  in Canadian National Railway on October 25, 2024 and sell it today you would earn a total of  262.00  from holding Canadian National Railway or generate 2.68% return on investment over 90 days.

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

TEXAS ROADHOUSE  vs.  Canadian National Railway

TEXAS ROADHOUSE

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in TEXAS ROADHOUSE are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, TEXAS ROADHOUSE may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Canadian National Railway

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with TEXAS ROADHOUSE and Canadian National

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

The idea behind TEXAS ROADHOUSE and Canadian National Railway 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.