Correlation Between Cheesecake Factory and American Hotel

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

Diversification Opportunities for Cheesecake Factory and American Hotel

-0.43

Correlation Coefficient

Cheesecake Factory  American Hotel

Very good diversification

The 3 months correlation between Cheesecake and American is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding The Cheesecake Factory and American Hotel Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Hotel Income 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 American Hotel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Hotel Income has no effect on the direction of Cheesecake Factory i.e., Cheesecake Factory and American Hotel go up and down completely randomly.

Pair Corralation between Cheesecake Factory and American Hotel

Given the investment horizon of 90 days The Cheesecake Factory is expected to generate 0.51 times more return on investment than American Hotel. However, The Cheesecake Factory is 1.95 times less risky than American Hotel. It trades about 0.22 of its potential returns per unit of risk. American Hotel Income is currently generating about 0.04 per unit of risk. If you would invest  3,649  in The Cheesecake Factory on September 12, 2024 and sell it today you would earn a total of  1,360  from holding The Cheesecake Factory or generate 37.27% 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.  American Hotel Income

The Cheesecake Factory

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Cheesecake Factory are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating forward-looking signals, Cheesecake Factory exhibited solid returns over the last few months and may actually be approaching a breakup point.

American Hotel Income

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in American Hotel Income are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, American Hotel may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cheesecake Factory and American Hotel

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

The idea behind The Cheesecake Factory and American Hotel Income 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.