Correlation Between TEXAS ROADHOUSE and State Street

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

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

Diversification Opportunities for TEXAS ROADHOUSE and State Street

0.96

Correlation Coefficient

TEXAS ROADHOUSE  State Street

Almost no diversification

The 3 months correlation between TEXAS and State is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding TEXAS ROADHOUSE and State Street in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on State Street 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 State Street. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of State Street has no effect on the direction of TEXAS ROADHOUSE i.e., TEXAS ROADHOUSE and State Street go up and down completely randomly.

Pair Corralation between TEXAS ROADHOUSE and State Street

Assuming the 90 days trading horizon TEXAS ROADHOUSE is expected to generate 1.05 times less return on investment than State Street. In addition to that, TEXAS ROADHOUSE is 1.53 times more volatile than State Street. It trades about 0.21 of its total potential returns per unit of risk. State Street is currently generating about 0.34 per unit of volatility. If you would invest  7,361  in State Street on September 13, 2024 and sell it today you would earn a total of  2,120  from holding State Street or generate 28.8% return on investment over 90 days.

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

TEXAS ROADHOUSE  vs.  State Street

TEXAS ROADHOUSE

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in TEXAS ROADHOUSE are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, TEXAS ROADHOUSE exhibited solid returns over the last few months and may actually be approaching a breakup point.

State Street

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in State Street are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, State Street reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TEXAS ROADHOUSE and State Street

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

The idea behind TEXAS ROADHOUSE and State Street 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.