Correlation Between Texas Roadhouse and Churchill Downs

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

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

Diversification Opportunities for Texas Roadhouse and Churchill Downs

0.4

Correlation Coefficient

Texas Roadhouse  Churchill Downs

Very weak diversification

The 3 months correlation between Texas and Churchill is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Texas Roadhouse and Churchill Downs Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Churchill Downs 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 Churchill Downs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Churchill Downs has no effect on the direction of Texas Roadhouse i.e., Texas Roadhouse and Churchill Downs go up and down completely randomly.

Pair Corralation between Texas Roadhouse and Churchill Downs

Assuming the 90 days horizon Texas Roadhouse is expected to generate 1.46 times more return on investment than Churchill Downs. However, Texas Roadhouse is 1.46 times more volatile than Churchill Downs Incorporated. It trades about -0.11 of its potential returns per unit of risk. Churchill Downs Incorporated is currently generating about -0.27 per unit of risk. If you would invest  17,529  in Texas Roadhouse on December 21, 2024 and sell it today you would lose (2,254) from holding Texas Roadhouse or give up 12.86% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Texas Roadhouse  vs.  Churchill Downs Incorporated

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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Churchill Downs

Risk-Adjusted Performance

Very Weak

Over the last 90 days Churchill Downs Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Texas Roadhouse and Churchill Downs

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

The idea behind Texas Roadhouse and Churchill Downs Incorporated 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.