Correlation Between Texas Roadhouse and Big 5

Can any of the company-specific risk be diversified away by investing in both Texas Roadhouse and Big 5 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 Big 5 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Texas Roadhouse and Big 5 Sporting, you can compare the effects of market volatilities on Texas Roadhouse and Big 5 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 Big 5. Check out your portfolio center. Please also check ongoing floating volatility patterns of Texas Roadhouse and Big 5.

Diversification Opportunities for Texas Roadhouse and Big 5

-0.59

Correlation Coefficient

Texas Roadhouse  Big 5

Excellent diversification

The 3 months correlation between Texas and Big is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Texas Roadhouse and Big 5 Sporting in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Big 5 Sporting 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 Big 5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Big 5 Sporting has no effect on the direction of Texas Roadhouse i.e., Texas Roadhouse and Big 5 go up and down completely randomly.

Pair Corralation between Texas Roadhouse and Big 5

Assuming the 90 days horizon Texas Roadhouse is expected to generate 0.57 times more return on investment than Big 5. However, Texas Roadhouse is 1.76 times less risky than Big 5. It trades about 0.18 of its potential returns per unit of risk. Big 5 Sporting is currently generating about 0.08 per unit of risk. If you would invest  17,945  in Texas Roadhouse on August 31, 2024 and sell it today you would earn a total of  1,475  from holding Texas Roadhouse or generate 8.22% 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.  Big 5 Sporting

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. Despite nearly unsteady basic indicators, Texas Roadhouse reported solid returns over the last few months and may actually be approaching a breakup point.

Big 5 Sporting

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Big 5 Sporting has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Big 5 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 Big 5

The main advantage of trading using opposite Texas Roadhouse and Big 5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Texas Roadhouse position performs unexpectedly, Big 5 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 Big 5 will offset losses from the drop in Big 5's long position.

The idea behind Texas Roadhouse and Big 5 Sporting 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.