Correlation Between TEXAS ROADHOUSE and Bank of America Corp

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

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

Diversification Opportunities for TEXAS ROADHOUSE and Bank of America Corp

0.06

Correlation Coefficient

TEXAS ROADHOUSE  Bank of America Corp

Significant diversification

The 3 months correlation between TEXAS and Bank is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding TEXAS ROADHOUSE and Bank of America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of America Corp 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 Bank of America Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of America Corp has no effect on the direction of TEXAS ROADHOUSE i.e., TEXAS ROADHOUSE and Bank of America Corp go up and down completely randomly.

Pair Corralation between TEXAS ROADHOUSE and Bank of America Corp

Assuming the 90 days trading horizon TEXAS ROADHOUSE is expected to generate 0.77 times more return on investment than Bank of America Corp. However, TEXAS ROADHOUSE is 1.3 times less risky than Bank of America Corp. It trades about 0.02 of its potential returns per unit of risk. Bank of America is currently generating about -0.19 per unit of risk. If you would invest  17,195  in TEXAS ROADHOUSE on December 5, 2024 and sell it today you would earn a total of  55.00  from holding TEXAS ROADHOUSE or generate 0.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

TEXAS ROADHOUSE  vs.  Bank of America

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 fragile 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.

Bank of America Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank of America has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's fundamental drivers remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with TEXAS ROADHOUSE and Bank of America Corp

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

The idea behind TEXAS ROADHOUSE and Bank of America 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.