Correlation Between Texas Roadhouse and TAL Education

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

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

Diversification Opportunities for Texas Roadhouse and TAL Education

0.01

Correlation Coefficient

Texas Roadhouse  TAL Education

Significant diversification

The 3 months correlation between Texas and TAL is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Texas Roadhouse and TAL Education Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TAL Education Group 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 TAL Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TAL Education Group has no effect on the direction of Texas Roadhouse i.e., Texas Roadhouse and TAL Education go up and down completely randomly.

Pair Corralation between Texas Roadhouse and TAL Education

Assuming the 90 days horizon Texas Roadhouse is expected to generate 0.41 times more return on investment than TAL Education. However, Texas Roadhouse is 2.45 times less risky than TAL Education. It trades about 0.05 of its potential returns per unit of risk. TAL Education Group is currently generating about 0.01 per unit of risk. If you would invest  15,859  in Texas Roadhouse on September 25, 2024 and sell it today you would earn a total of  1,601  from holding Texas Roadhouse or generate 10.1% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Texas Roadhouse  vs.  TAL Education Group

Texas Roadhouse

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Roadhouse are ranked lower than 8 (%) 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.

TAL Education Group

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in TAL Education Group are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, TAL Education reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Texas Roadhouse and TAL Education

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

The idea behind Texas Roadhouse and TAL Education Group 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.