Correlation Between Cheesecake Factory and Royalty Management

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

Diversification Opportunities for Cheesecake Factory and Royalty Management

0.55

Correlation Coefficient

Cheesecake Factory  Royalty Management

Very weak diversification

The 3 months correlation between Cheesecake and Royalty is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding The Cheesecake Factory and Royalty Management Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royalty Management 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 Royalty Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royalty Management has no effect on the direction of Cheesecake Factory i.e., Cheesecake Factory and Royalty Management go up and down completely randomly.

Pair Corralation between Cheesecake Factory and Royalty Management

Given the investment horizon of 90 days The Cheesecake Factory is expected to under-perform the Royalty Management. But the stock apears to be less risky and, when comparing its historical volatility, The Cheesecake Factory is 2.29 times less risky than Royalty Management. The stock trades about -0.01 of its potential returns per unit of risk. The Royalty Management Holding is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  103.00  in Royalty Management Holding on September 24, 2024 and sell it today you would earn a total of  15.00  from holding Royalty Management Holding or generate 14.56% return on investment over 90 days.

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

The Cheesecake Factory  vs.  Royalty Management Holding

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.

Royalty Management

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Royalty Management Holding are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, Royalty Management displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cheesecake Factory and Royalty Management

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

The idea behind The Cheesecake Factory and Royalty Management Holding 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.