Correlation Between Wingstop and Texas Roadhouse

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

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

Diversification Opportunities for Wingstop and Texas Roadhouse

0.28

Correlation Coefficient

Wingstop  Texas Roadhouse

Modest diversification

The 3 months correlation between Wingstop and Texas is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Wingstop and Texas Roadhouse in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Roadhouse and Wingstop 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 Wingstop 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 Wingstop i.e., Wingstop and Texas Roadhouse go up and down completely randomly.

Pair Corralation between Wingstop and Texas Roadhouse

Given the investment horizon of 90 days Wingstop is expected to generate 1.66 times more return on investment than Texas Roadhouse. However, Wingstop is 1.66 times more volatile than Texas Roadhouse. It trades about 0.06 of its potential returns per unit of risk. Texas Roadhouse is currently generating about 0.09 per unit of risk. If you would invest  15,552  in Wingstop on October 21, 2024 and sell it today you would earn a total of  11,740  from holding Wingstop or generate 75.49% return on investment over 90 days.

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

Wingstop  vs.  Texas Roadhouse

Wingstop

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wingstop has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 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 Wingstop and Texas Roadhouse

The main advantage of trading using opposite Wingstop and Texas Roadhouse positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wingstop 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 Wingstop 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.