Correlation Between Texas Roadhouse and BJs Restaurants

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

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

Diversification Opportunities for Texas Roadhouse and BJs Restaurants

-0.3

Correlation Coefficient

Texas Roadhouse  BJs Restaurants

Very good diversification

The 3 months correlation between Texas and BJs is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Texas Roadhouse and BJs Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BJs Restaurants and Texas Roadhouse 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 Texas Roadhouse are associated (or correlated) with BJs Restaurants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BJs Restaurants has no effect on the direction of Texas Roadhouse i.e., Texas Roadhouse and BJs Restaurants go up and down completely randomly.

Pair Corralation between Texas Roadhouse and BJs Restaurants

Given the investment horizon of 90 days Texas Roadhouse is expected to generate 0.59 times more return on investment than BJs Restaurants. However, Texas Roadhouse is 1.69 times less risky than BJs Restaurants. It trades about 0.1 of its potential returns per unit of risk. BJs Restaurants is currently generating about 0.04 per unit of risk. If you would invest  7,416  in Texas Roadhouse on February 6, 2024 and sell it today you would earn a total of  8,945  from holding Texas Roadhouse or generate 120.62% return on investment over 90 days.

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

Texas Roadhouse  vs.  BJs Restaurants

Texas Roadhouse

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Roadhouse are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite fairly abnormal basic indicators, Texas Roadhouse demonstrated solid returns over the last few months and may actually be approaching a breakup point.

BJs Restaurants

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BJs Restaurants has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, BJs Restaurants is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Texas Roadhouse and BJs Restaurants

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

The idea behind Texas Roadhouse and BJs Restaurants 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.