Correlation Between Texas Roadhouse and China Shenhua

Can any of the company-specific risk be diversified away by investing in both Texas Roadhouse and China Shenhua 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 Shenhua 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 Shenhua Energy, you can compare the effects of market volatilities on Texas Roadhouse and China Shenhua 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 Shenhua. Check out your portfolio center. Please also check ongoing floating volatility patterns of Texas Roadhouse and China Shenhua.

Diversification Opportunities for Texas Roadhouse and China Shenhua

0.51

Correlation Coefficient

Texas Roadhouse  China Shenhua

Very weak diversification

The 3 months correlation between Texas and China is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Texas Roadhouse and China Shenhua Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Shenhua Energy 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 Shenhua. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Shenhua Energy has no effect on the direction of Texas Roadhouse i.e., Texas Roadhouse and China Shenhua go up and down completely randomly.

Pair Corralation between Texas Roadhouse and China Shenhua

Assuming the 90 days horizon Texas Roadhouse is expected to generate 4.05 times less return on investment than China Shenhua. But when comparing it to its historical volatility, Texas Roadhouse is 3.89 times less risky than China Shenhua. It trades about 0.07 of its potential returns per unit of risk. China Shenhua Energy is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  177.00  in China Shenhua Energy on October 25, 2024 and sell it today you would earn a total of  193.00  from holding China Shenhua Energy or generate 109.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.52%
Values	Daily Returns

Texas Roadhouse  vs.  China Shenhua Energy

Texas Roadhouse

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Roadhouse are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Texas Roadhouse may actually be approaching a critical reversion point that can send shares even higher in February 2025.

China Shenhua Energy

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Texas Roadhouse and China Shenhua Energy 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.

Check out your portfolio center.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.