Correlation Between Texas Roadhouse and China Mobile

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

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

Diversification Opportunities for Texas Roadhouse and China Mobile

0.77

Correlation Coefficient

Texas Roadhouse  China Mobile

Poor diversification

The 3 months correlation between Texas and China is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Texas Roadhouse and China Life Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Life Insurance 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 China Mobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Life Insurance has no effect on the direction of Texas Roadhouse i.e., Texas Roadhouse and China Mobile go up and down completely randomly.

Pair Corralation between Texas Roadhouse and China Mobile

Assuming the 90 days horizon Texas Roadhouse is expected to generate 1.84 times less return on investment than China Mobile. But when comparing it to its historical volatility, Texas Roadhouse is 2.51 times less risky than China Mobile. It trades about 0.11 of its potential returns per unit of risk. China Life Insurance is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  75.00  in China Life Insurance on September 12, 2024 and sell it today you would earn a total of  119.00  from holding China Life Insurance or generate 158.67% 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.  China Life Insurance

Texas Roadhouse

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Roadhouse are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Texas Roadhouse reported solid returns over the last few months and may actually be approaching a breakup point.

China Life Insurance

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in China Life Insurance are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Mobile reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Texas Roadhouse and China Mobile

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

The idea behind Texas Roadhouse and China Life Insurance 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.