Correlation Between Texas Roadhouse and Rave Restaurant

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

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

Diversification Opportunities for Texas Roadhouse and Rave Restaurant

0.79

Correlation Coefficient

Texas Roadhouse  Rave Restaurant

Poor diversification

The 3 months correlation between Texas and Rave is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Texas Roadhouse and Rave Restaurant Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rave Restaurant 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 Rave Restaurant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rave Restaurant Group has no effect on the direction of Texas Roadhouse i.e., Texas Roadhouse and Rave Restaurant go up and down completely randomly.

Pair Corralation between Texas Roadhouse and Rave Restaurant

Given the investment horizon of 90 days Texas Roadhouse is expected to generate 1.12 times less return on investment than Rave Restaurant. But when comparing it to its historical volatility, Texas Roadhouse is 2.21 times less risky than Rave Restaurant. It trades about 0.1 of its potential returns per unit of risk. Rave Restaurant Group is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  152.00  in Rave Restaurant Group on September 19, 2024 and sell it today you would earn a total of  118.00  from holding Rave Restaurant Group or generate 77.63% 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.  Rave Restaurant Group

Texas Roadhouse

Risk-Adjusted Performance

3 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Roadhouse are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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.

Rave Restaurant Group

Risk-Adjusted Performance

13 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rave Restaurant Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Rave Restaurant exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Texas Roadhouse and Rave Restaurant

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

The idea behind Texas Roadhouse and Rave Restaurant 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.