Correlation Between SWK Holdings and Texas Roadhouse

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

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

Diversification Opportunities for SWK Holdings and Texas Roadhouse

-0.16

Correlation Coefficient

SWK Holdings  Texas Roadhouse

Good diversification

The 3 months correlation between SWK and Texas is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding SWK Holdings and Texas Roadhouse in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Roadhouse and SWK Holdings 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 SWK Holdings are associated (or correlated) with Texas Roadhouse. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Texas Roadhouse has no effect on the direction of SWK Holdings i.e., SWK Holdings and Texas Roadhouse go up and down completely randomly.

Pair Corralation between SWK Holdings and Texas Roadhouse

Assuming the 90 days horizon SWK Holdings is expected to generate 0.23 times more return on investment than Texas Roadhouse. However, SWK Holdings is 4.27 times less risky than Texas Roadhouse. It trades about 0.03 of its potential returns per unit of risk. Texas Roadhouse is currently generating about -0.04 per unit of risk. If you would invest  2,473  in SWK Holdings on December 18, 2024 and sell it today you would earn a total of  14.00  from holding SWK Holdings or generate 0.57% return on investment over 90 days.

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

SWK Holdings  vs.  Texas Roadhouse

SWK Holdings

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SWK Holdings are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical indicators, SWK Holdings is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

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 fairly strong basic indicators, Texas Roadhouse is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with SWK Holdings and Texas Roadhouse

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

The idea behind SWK Holdings and Texas Roadhouse 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.