Correlation Between Wendys and Texas Roadhouse

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

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

Diversification Opportunities for Wendys and Texas Roadhouse

0.22

Correlation Coefficient

Wendys  Texas Roadhouse

Modest diversification

The 3 months correlation between Wendys and Texas is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding The Wendys Co and Texas Roadhouse in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Roadhouse and Wendys 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 The Wendys Co 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 Wendys i.e., Wendys and Texas Roadhouse go up and down completely randomly.

Pair Corralation between Wendys and Texas Roadhouse

Considering the 90-day investment horizon Wendys is expected to generate 1.21 times less return on investment than Texas Roadhouse. But when comparing it to its historical volatility, The Wendys Co is 1.21 times less risky than Texas Roadhouse. It trades about 0.34 of its potential returns per unit of risk. Texas Roadhouse is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  15,019  in Texas Roadhouse on February 6, 2024 and sell it today you would earn a total of  1,342  from holding Texas Roadhouse or generate 8.94% return on investment over 90 days.

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

The Wendys Co  vs.  Texas Roadhouse

The Wendys

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in The Wendys Co are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal technical and fundamental indicators, Wendys may actually be approaching a critical reversion point that can send shares even higher in June 2024.

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.

Pair Trading with Wendys and Texas Roadhouse

The main advantage of trading using opposite Wendys and Texas Roadhouse positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wendys 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 The Wendys Co 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.