Correlation Between CDN IMPERIAL and Texas Roadhouse

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

By analyzing existing cross correlation between CDN IMPERIAL BANK and Texas Roadhouse, you can compare the effects of market volatilities on CDN IMPERIAL and Texas Roadhouse 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 CDN IMPERIAL with a short position of Texas Roadhouse. Check out your portfolio center. Please also check ongoing floating volatility patterns of CDN IMPERIAL and Texas Roadhouse.

Diversification Opportunities for CDN IMPERIAL and Texas Roadhouse

0.93

Correlation Coefficient

CDN IMPERIAL  Texas Roadhouse

Almost no diversification

The 3 months correlation between CDN and Texas is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding CDN IMPERIAL BANK and Texas Roadhouse in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Roadhouse and CDN IMPERIAL 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 CDN IMPERIAL BANK are associated (or correlated) with Texas Roadhouse. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Texas Roadhouse has no effect on the direction of CDN IMPERIAL i.e., CDN IMPERIAL and Texas Roadhouse go up and down completely randomly.

Pair Corralation between CDN IMPERIAL and Texas Roadhouse

Assuming the 90 days trading horizon CDN IMPERIAL is expected to generate 3.17 times less return on investment than Texas Roadhouse. But when comparing it to its historical volatility, CDN IMPERIAL BANK is 2.3 times less risky than Texas Roadhouse. It trades about 0.22 of its potential returns per unit of risk. Texas Roadhouse is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  17,200  in Texas Roadhouse on September 5, 2024 and sell it today you would earn a total of  2,310  from holding Texas Roadhouse or generate 13.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.65%
Values	Daily Returns

CDN IMPERIAL BANK  vs.  Texas Roadhouse

CDN IMPERIAL BANK

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CDN IMPERIAL BANK are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady forward indicators, CDN IMPERIAL unveiled solid returns over the last few months and may actually be approaching a breakup point.

Texas Roadhouse

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Roadhouse are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Texas Roadhouse reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CDN IMPERIAL and Texas Roadhouse

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

The idea behind CDN IMPERIAL BANK and Texas Roadhouse 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.