Can any of the company-specific risk be diversified away by investing in both Brinker International and Churchill Downs 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 Brinker International and Churchill Downs into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Brinker International and Churchill Downs Incorporated, you can compare the effects of market volatilities on Brinker International and Churchill Downs 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 Brinker International with a short position of Churchill Downs. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brinker International and Churchill Downs.
Diversification Opportunities for Brinker International and Churchill Downs
The 3 months correlation between Brinker and Churchill is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Brinker International and Churchill Downs Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Churchill Downs and Brinker International 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 Brinker International are associated (or correlated) with Churchill Downs. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Churchill Downs has no effect on the direction of Brinker International i.e., Brinker International and Churchill Downs go up and down completely randomly.
Pair Corralation between Brinker International and Churchill Downs
Considering the 90-day investment horizon Brinker International is expected to generate 1.41 times more return on investment than Churchill Downs. However, Brinker International is 1.41 times more volatile than Churchill Downs Incorporated. It trades about 0.29 of its potential returns per unit of risk. Churchill Downs Incorporated is currently generating about 0.18 per unit of risk. If you would invest 4,877 in Brinker International on March 6, 2024 and sell it today you would earn a total of 2,284 from holding Brinker International or generate 46.83% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Brinker International are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Brinker International unveiled solid returns over the last few months and may actually be approaching a breakup point.
Compared to the overall equity markets, risk-adjusted returns on investments in Churchill Downs Incorporated are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting fundamental indicators, Churchill Downs displayed solid returns over the last few months and may actually be approaching a breakup point.