Correlation Between BJs Restaurants and Urban Outfitters

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

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

Diversification Opportunities for BJs Restaurants and Urban Outfitters

0.43

Correlation Coefficient

BJs Restaurants  Urban Outfitters

Very weak diversification

The 3 months correlation between BJs and Urban is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding BJs Restaurants and Urban Outfitters in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Urban Outfitters 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 Urban Outfitters. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Urban Outfitters has no effect on the direction of BJs Restaurants i.e., BJs Restaurants and Urban Outfitters go up and down completely randomly.

Pair Corralation between BJs Restaurants and Urban Outfitters

Assuming the 90 days trading horizon BJs Restaurants is expected to generate 24.91 times less return on investment than Urban Outfitters. But when comparing it to its historical volatility, BJs Restaurants is 1.11 times less risky than Urban Outfitters. It trades about 0.02 of its potential returns per unit of risk. Urban Outfitters is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  3,220  in Urban Outfitters on October 25, 2024 and sell it today you would earn a total of  2,630  from holding Urban Outfitters or generate 81.68% return on investment over 90 days.

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

BJs Restaurants  vs.  Urban Outfitters

BJs Restaurants

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Restaurants are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, BJs Restaurants is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Urban Outfitters

Risk-Adjusted Performance

29 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Urban Outfitters are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Urban Outfitters reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BJs Restaurants and Urban Outfitters

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

The idea behind BJs Restaurants and Urban Outfitters 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.