Correlation Between Texas Roadhouse and Air Transport

Can any of the company-specific risk be diversified away by investing in both Texas Roadhouse and Air Transport 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 Air Transport into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Texas Roadhouse and Air Transport Services, you can compare the effects of market volatilities on Texas Roadhouse and Air Transport 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 Air Transport. Check out your portfolio center. Please also check ongoing floating volatility patterns of Texas Roadhouse and Air Transport.

Diversification Opportunities for Texas Roadhouse and Air Transport

-0.28

Correlation Coefficient

Texas Roadhouse  Air Transport

Very good diversification

The 3 months correlation between Texas and Air is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding Texas Roadhouse and Air Transport Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Transport Services 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 Air Transport. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Transport Services has no effect on the direction of Texas Roadhouse i.e., Texas Roadhouse and Air Transport go up and down completely randomly.

Pair Corralation between Texas Roadhouse and Air Transport

Assuming the 90 days horizon Texas Roadhouse is expected to under-perform the Air Transport. But the stock apears to be less risky and, when comparing its historical volatility, Texas Roadhouse is 1.51 times less risky than Air Transport. The stock trades about -0.01 of its potential returns per unit of risk. The Air Transport Services is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,500  in Air Transport Services on November 19, 2024 and sell it today you would earn a total of  620.00  from holding Air Transport Services or generate 41.33% return on investment over 90 days.

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

Texas Roadhouse  vs.  Air Transport Services

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. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Air Transport Services

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Air Transport Services are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Air Transport is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Texas Roadhouse and Air Transport

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

The idea behind Texas Roadhouse and Air Transport Services 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.