Correlation Between Wabash National and Cheesecake Factory

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

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

Diversification Opportunities for Wabash National and Cheesecake Factory

0.29

Correlation Coefficient

Wabash National  Cheesecake Factory

Modest diversification

The 3 months correlation between Wabash and Cheesecake is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Wabash National 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 Wabash National 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 Wabash National 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 Wabash National i.e., Wabash National and Cheesecake Factory go up and down completely randomly.

Pair Corralation between Wabash National and Cheesecake Factory

Considering the 90-day investment horizon Wabash National is expected to under-perform the Cheesecake Factory. In addition to that, Wabash National is 1.01 times more volatile than The Cheesecake Factory. It trades about -0.05 of its total potential returns per unit of risk. The Cheesecake Factory is currently generating about 0.1 per unit of volatility. If you would invest  3,123  in The Cheesecake Factory on October 10, 2024 and sell it today you would earn a total of  1,850  from holding The Cheesecake Factory or generate 59.24% return on investment over 90 days.

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

Wabash National  vs.  The Cheesecake Factory

Wabash National

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wabash National has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Wabash National is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

The Cheesecake Factory

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Cheesecake Factory are ranked lower than 14 (%) 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 Wabash National and Cheesecake Factory

The main advantage of trading using opposite Wabash National and Cheesecake Factory positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wabash National 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 Wabash National 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.