Correlation Between TEXAS ROADHOUSE and Nippon Steel

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

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

Diversification Opportunities for TEXAS ROADHOUSE and Nippon Steel

-0.42

Correlation Coefficient

TEXAS ROADHOUSE  Nippon Steel

Very good diversification

The 3 months correlation between TEXAS and Nippon is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding TEXAS ROADHOUSE and Nippon Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Steel 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 Nippon Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Steel has no effect on the direction of TEXAS ROADHOUSE i.e., TEXAS ROADHOUSE and Nippon Steel go up and down completely randomly.

Pair Corralation between TEXAS ROADHOUSE and Nippon Steel

Assuming the 90 days trading horizon TEXAS ROADHOUSE is expected to generate 1.03 times more return on investment than Nippon Steel. However, TEXAS ROADHOUSE is 1.03 times more volatile than Nippon Steel. It trades about 0.22 of its potential returns per unit of risk. Nippon Steel is currently generating about -0.04 per unit of risk. If you would invest  15,074  in TEXAS ROADHOUSE on September 3, 2024 and sell it today you would earn a total of  4,131  from holding TEXAS ROADHOUSE or generate 27.4% return on investment over 90 days.

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

TEXAS ROADHOUSE  vs.  Nippon Steel

TEXAS ROADHOUSE

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TEXAS ROADHOUSE are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, TEXAS ROADHOUSE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Nippon Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nippon Steel has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Nippon Steel is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with TEXAS ROADHOUSE and Nippon Steel

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

The idea behind TEXAS ROADHOUSE and Nippon Steel 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.