Correlation Between TEXAS ROADHOUSE and Sterling Construction

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

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

Diversification Opportunities for TEXAS ROADHOUSE and Sterling Construction

0.65

Correlation Coefficient

TEXAS ROADHOUSE  Sterling Construction

Poor diversification

The 3 months correlation between TEXAS and Sterling is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding TEXAS ROADHOUSE and Sterling Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sterling Construction 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 Sterling Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sterling Construction has no effect on the direction of TEXAS ROADHOUSE i.e., TEXAS ROADHOUSE and Sterling Construction go up and down completely randomly.

Pair Corralation between TEXAS ROADHOUSE and Sterling Construction

Assuming the 90 days trading horizon TEXAS ROADHOUSE is expected to under-perform the Sterling Construction. But the stock apears to be less risky and, when comparing its historical volatility, TEXAS ROADHOUSE is 4.1 times less risky than Sterling Construction. The stock trades about -0.13 of its potential returns per unit of risk. The Sterling Construction is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  16,435  in Sterling Construction on October 27, 2024 and sell it today you would earn a total of  1,285  from holding Sterling Construction or generate 7.82% return on investment over 90 days.

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

TEXAS ROADHOUSE  vs.  Sterling Construction

TEXAS ROADHOUSE

Risk-Adjusted Performance

0 of 100

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 rather sound basic indicators, TEXAS ROADHOUSE is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Sterling Construction

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sterling Construction are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Sterling Construction reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TEXAS ROADHOUSE and Sterling Construction

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

The idea behind TEXAS ROADHOUSE and Sterling Construction 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.