Correlation Between Restaurant Brands and BJs Restaurants

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

By analyzing existing cross correlation between Restaurant Brands International and BJs Restaurants, you can compare the effects of market volatilities on Restaurant Brands and BJs Restaurants 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 Restaurant Brands with a short position of BJs Restaurants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Restaurant Brands and BJs Restaurants.

Diversification Opportunities for Restaurant Brands and BJs Restaurants

0.5

Correlation Coefficient

Restaurant Brands  BJs Restaurants

Very weak diversification

The 3 months correlation between Restaurant and BJs is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Restaurant Brands Internationa and BJs Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BJs Restaurants and Restaurant Brands 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 Restaurant Brands International are associated (or correlated) with BJs Restaurants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BJs Restaurants has no effect on the direction of Restaurant Brands i.e., Restaurant Brands and BJs Restaurants go up and down completely randomly.

Pair Corralation between Restaurant Brands and BJs Restaurants

Considering the 90-day investment horizon Restaurant Brands International is expected to under-perform the BJs Restaurants. But the stock apears to be less risky and, when comparing its historical volatility, Restaurant Brands International is 1.78 times less risky than BJs Restaurants. The stock trades about -0.27 of its potential returns per unit of risk. The BJs Restaurants is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  3,259  in BJs Restaurants on February 23, 2024 and sell it today you would earn a total of  248.00  from holding BJs Restaurants or generate 7.61% return on investment over 90 days.

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

Restaurant Brands Internationa  vs.  BJs Restaurants

Restaurant Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Restaurant Brands International has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest fragile performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

BJs Restaurants

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Restaurants are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, BJs Restaurants is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Restaurant Brands and BJs Restaurants

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

The idea behind Restaurant Brands International and BJs Restaurants 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.