Correlation Between Carsales and TEXAS ROADHOUSE

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

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

Diversification Opportunities for Carsales and TEXAS ROADHOUSE

0.74

Correlation Coefficient

Carsales  TEXAS ROADHOUSE

Poor diversification

The 3 months correlation between Carsales and TEXAS is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Carsales and TEXAS ROADHOUSE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TEXAS ROADHOUSE and Carsales 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 Carsales 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 Carsales i.e., Carsales and TEXAS ROADHOUSE go up and down completely randomly.

Pair Corralation between Carsales and TEXAS ROADHOUSE

Assuming the 90 days trading horizon Carsales is expected to generate 1.3 times less return on investment than TEXAS ROADHOUSE. But when comparing it to its historical volatility, Carsales is 1.0 times less risky than TEXAS ROADHOUSE. It trades about 0.07 of its potential returns per unit of risk. TEXAS ROADHOUSE is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  8,936  in TEXAS ROADHOUSE on October 7, 2024 and sell it today you would earn a total of  8,654  from holding TEXAS ROADHOUSE or generate 96.84% return on investment over 90 days.

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

Carsales  vs.  TEXAS ROADHOUSE

Carsales

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Carsales has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Carsales is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

TEXAS ROADHOUSE

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in TEXAS ROADHOUSE are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, TEXAS ROADHOUSE may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Carsales and TEXAS ROADHOUSE

The main advantage of trading using opposite Carsales and TEXAS ROADHOUSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Carsales 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 Carsales 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.