Correlation Between Cheesecake Factory and GMS

Can any of the company-specific risk be diversified away by investing in both Cheesecake Factory and GMS 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 GMS 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 GMS Inc, you can compare the effects of market volatilities on Cheesecake Factory and GMS 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 GMS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cheesecake Factory and GMS.

Diversification Opportunities for Cheesecake Factory and GMS

0.45

Correlation Coefficient

Cheesecake Factory  GMS

Very weak diversification

The 3 months correlation between Cheesecake and GMS is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding The Cheesecake Factory and GMS Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GMS Inc 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 GMS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GMS Inc has no effect on the direction of Cheesecake Factory i.e., Cheesecake Factory and GMS go up and down completely randomly.

Pair Corralation between Cheesecake Factory and GMS

Given the investment horizon of 90 days Cheesecake Factory is expected to generate 3.8 times less return on investment than GMS. In addition to that, Cheesecake Factory is 1.16 times more volatile than GMS Inc. It trades about 0.02 of its total potential returns per unit of risk. GMS Inc is currently generating about 0.07 per unit of volatility. If you would invest  4,775  in GMS Inc on January 26, 2024 and sell it today you would earn a total of  4,357  from holding GMS Inc or generate 91.25% return on investment over 90 days.

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

The Cheesecake Factory  vs.  GMS Inc

The Cheesecake Factory

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Cheesecake Factory are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating forward-looking signals, Cheesecake Factory may actually be approaching a critical reversion point that can send shares even higher in May 2024.

GMS Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in GMS Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak primary indicators, GMS may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Cheesecake Factory and GMS

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

The idea behind The Cheesecake Factory and GMS Inc 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.