Correlation Between BROADCOM and Cheesecake Factory

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

By analyzing existing cross correlation between BROADCOM INC and The Cheesecake Factory, you can compare the effects of market volatilities on BROADCOM and Cheesecake Factory 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 BROADCOM with a short position of Cheesecake Factory. Check out your portfolio center. Please also check ongoing floating volatility patterns of BROADCOM and Cheesecake Factory.

Diversification Opportunities for BROADCOM and Cheesecake Factory

-0.52

Correlation Coefficient

BROADCOM  Cheesecake Factory

Excellent diversification

The 3 months correlation between BROADCOM and Cheesecake is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding BROADCOM INC and The Cheesecake Factory in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Cheesecake Factory and BROADCOM 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 BROADCOM INC are associated (or correlated) with Cheesecake Factory. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Cheesecake Factory has no effect on the direction of BROADCOM i.e., BROADCOM and Cheesecake Factory go up and down completely randomly.

Pair Corralation between BROADCOM and Cheesecake Factory

Assuming the 90 days trading horizon BROADCOM INC is expected to under-perform the Cheesecake Factory. But the bond apears to be less risky and, when comparing its historical volatility, BROADCOM INC is 7.17 times less risky than Cheesecake Factory. The bond trades about -0.1 of its potential returns per unit of risk. The The Cheesecake Factory is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  3,737  in The Cheesecake Factory on September 14, 2024 and sell it today you would earn a total of  1,251  from holding The Cheesecake Factory or generate 33.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.88%
Values	Daily Returns

BROADCOM INC  vs.  The Cheesecake Factory

BROADCOM INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BROADCOM INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, BROADCOM is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

The Cheesecake Factory

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Cheesecake Factory are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating forward-looking signals, Cheesecake Factory exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BROADCOM and Cheesecake Factory

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

The idea behind BROADCOM INC and The Cheesecake Factory 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.