Correlation Between BJs Restaurants and Lamar Advertising

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

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

Diversification Opportunities for BJs Restaurants and Lamar Advertising

0.71

Correlation Coefficient

BJs Restaurants  Lamar Advertising

Poor diversification

The 3 months correlation between BJs and Lamar is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding BJs Restaurants and Lamar Advertising in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lamar Advertising and BJs Restaurants 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 BJs Restaurants are associated (or correlated) with Lamar Advertising. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lamar Advertising has no effect on the direction of BJs Restaurants i.e., BJs Restaurants and Lamar Advertising go up and down completely randomly.

Pair Corralation between BJs Restaurants and Lamar Advertising

Assuming the 90 days trading horizon BJs Restaurants is expected to under-perform the Lamar Advertising. In addition to that, BJs Restaurants is 1.2 times more volatile than Lamar Advertising. It trades about -0.09 of its total potential returns per unit of risk. Lamar Advertising is currently generating about -0.1 per unit of volatility. If you would invest  11,636  in Lamar Advertising on December 21, 2024 and sell it today you would lose (1,236) from holding Lamar Advertising or give up 10.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

BJs Restaurants  vs.  Lamar Advertising

BJs Restaurants

Risk-Adjusted Performance

Very Weak

Over the last 90 days BJs Restaurants has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Lamar Advertising

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lamar Advertising has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with BJs Restaurants and Lamar Advertising

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

The idea behind BJs Restaurants and Lamar Advertising 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.