Correlation Between Texas Roadhouse and AeroVironment

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

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

Diversification Opportunities for Texas Roadhouse and AeroVironment

0.1

Correlation Coefficient

Texas Roadhouse  AeroVironment

Average diversification

The 3 months correlation between Texas and AeroVironment is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Texas Roadhouse and AeroVironment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AeroVironment 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 AeroVironment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AeroVironment has no effect on the direction of Texas Roadhouse i.e., Texas Roadhouse and AeroVironment go up and down completely randomly.

Pair Corralation between Texas Roadhouse and AeroVironment

Assuming the 90 days horizon Texas Roadhouse is expected to generate 1.47 times less return on investment than AeroVironment. But when comparing it to its historical volatility, Texas Roadhouse is 2.13 times less risky than AeroVironment. It trades about 0.09 of its potential returns per unit of risk. AeroVironment is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  8,412  in AeroVironment on October 27, 2024 and sell it today you would earn a total of  9,083  from holding AeroVironment or generate 107.98% 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.  AeroVironment

Texas Roadhouse

Risk-Adjusted Performance

0 of 100

Very Weak

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.

AeroVironment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AeroVironment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Texas Roadhouse and AeroVironment

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

The idea behind Texas Roadhouse and AeroVironment 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.