Correlation Between Cheesecake Factory and Brickworks

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

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

Diversification Opportunities for Cheesecake Factory and Brickworks

-0.44

Correlation Coefficient

Cheesecake Factory  Brickworks

Very good diversification

The 3 months correlation between Cheesecake and Brickworks is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding The Cheesecake Factory and Brickworks Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brickworks Limited and Cheesecake Factory 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 Cheesecake Factory are associated (or correlated) with Brickworks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brickworks Limited has no effect on the direction of Cheesecake Factory i.e., Cheesecake Factory and Brickworks go up and down completely randomly.

Pair Corralation between Cheesecake Factory and Brickworks

Given the investment horizon of 90 days The Cheesecake Factory is expected to under-perform the Brickworks. In addition to that, Cheesecake Factory is 4.89 times more volatile than Brickworks Limited. It trades about -0.11 of its total potential returns per unit of risk. Brickworks Limited is currently generating about 0.21 per unit of volatility. If you would invest  1,776  in Brickworks Limited on February 4, 2024 and sell it today you would earn a total of  24.00  from holding Brickworks Limited or generate 1.35% return on investment over 90 days.

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

The Cheesecake Factory  vs.  Brickworks Limited

The Cheesecake Factory

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Cheesecake Factory has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking signals, Cheesecake Factory is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Brickworks Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Brickworks Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Brickworks is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Cheesecake Factory and Brickworks

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

The idea behind The Cheesecake Factory and Brickworks Limited 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.