Correlation Between Cheesecake Factory and Bank of New York

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

Diversification Opportunities for Cheesecake Factory and Bank of New York

0.85

Correlation Coefficient

Cheesecake Factory  Bank of New York

Very poor diversification

The 3 months correlation between Cheesecake and Bank is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding The Cheesecake Factory and Bank of New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of New York 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 Bank of New York. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of New York has no effect on the direction of Cheesecake Factory i.e., Cheesecake Factory and Bank of New York go up and down completely randomly.

Pair Corralation between Cheesecake Factory and Bank of New York

Given the investment horizon of 90 days The Cheesecake Factory is expected to generate 2.03 times more return on investment than Bank of New York. However, Cheesecake Factory is 2.03 times more volatile than Bank of New. It trades about -0.01 of its potential returns per unit of risk. Bank of New is currently generating about -0.2 per unit of risk. If you would invest  4,877  in The Cheesecake Factory on September 24, 2024 and sell it today you would lose (40.00) from holding The Cheesecake Factory or give up 0.82% of portfolio value over 90 days.

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

The Cheesecake Factory  vs.  Bank of New

The Cheesecake Factory

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Cheesecake Factory are ranked lower than 10 (%) 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.

Bank of New York

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of New are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain forward-looking signals, Bank of New York may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Cheesecake Factory and Bank of New York

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

The idea behind The Cheesecake Factory and Bank of New 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.