Correlation Between Texas Roadhouse and Ally Financial

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

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

Diversification Opportunities for Texas Roadhouse and Ally Financial

0.66

Correlation Coefficient

Texas Roadhouse  Ally Financial

Poor diversification

The 3 months correlation between Texas and Ally is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Texas Roadhouse and Ally Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ally Financial 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 Ally Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ally Financial has no effect on the direction of Texas Roadhouse i.e., Texas Roadhouse and Ally Financial go up and down completely randomly.

Pair Corralation between Texas Roadhouse and Ally Financial

Assuming the 90 days horizon Texas Roadhouse is expected to under-perform the Ally Financial. But the stock apears to be less risky and, when comparing its historical volatility, Texas Roadhouse is 1.27 times less risky than Ally Financial. The stock trades about -0.04 of its potential returns per unit of risk. The Ally Financial is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  3,442  in Ally Financial on October 26, 2024 and sell it today you would earn a total of  353.00  from holding Ally Financial or generate 10.26% 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.  Ally Financial

Texas Roadhouse

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Texas Roadhouse has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Texas Roadhouse is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Ally Financial

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ally Financial are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Ally Financial reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Texas Roadhouse and Ally Financial

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

The idea behind Texas Roadhouse and Ally Financial 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.