Can any of the company-specific risk be diversified away by investing in both Cheesecake Factory and Restaurant Brands 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 Restaurant Brands 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 Restaurant Brands International, you can compare the effects of market volatilities on Cheesecake Factory and Restaurant Brands 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 Restaurant Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cheesecake Factory and Restaurant Brands.
Diversification Opportunities for Cheesecake Factory and Restaurant Brands
The 3 months correlation between Cheesecake and Restaurant is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding The Cheesecake Factory and Restaurant Brands Internationa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Restaurant Brands 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 Restaurant Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Restaurant Brands has no effect on the direction of Cheesecake Factory i.e., Cheesecake Factory and Restaurant Brands go up and down completely randomly.
Pair Corralation between Cheesecake Factory and Restaurant Brands
Given the investment horizon of 90 days The Cheesecake Factory is expected to generate 2.23 times more return on investment than Restaurant Brands. However, Cheesecake Factory is 2.23 times more volatile than Restaurant Brands International. It trades about 0.24 of its potential returns per unit of risk. Restaurant Brands International is currently generating about -0.29 per unit of risk. If you would invest 3,439 in The Cheesecake Factory on March 6, 2024 and sell it today you would earn a total of 456.00 from holding The Cheesecake Factory or generate 13.26% return on investment over 90 days.
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 July 2024.
Over the last 90 days Restaurant Brands International has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in July 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.