Correlation Between Citizens Financial and Cheesecake Factory

Can any of the company-specific risk be diversified away by investing in both Citizens Financial and Cheesecake Factory 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 Citizens Financial and Cheesecake Factory into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Citizens Financial Group, and The Cheesecake Factory, you can compare the effects of market volatilities on Citizens Financial and Cheesecake Factory 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 Citizens Financial with a short position of Cheesecake Factory. Check out your portfolio center. Please also check ongoing floating volatility patterns of Citizens Financial and Cheesecake Factory.

Diversification Opportunities for Citizens Financial and Cheesecake Factory

0.56

Correlation Coefficient

Citizens Financial  Cheesecake Factory

Very weak diversification

The 3 months correlation between Citizens and Cheesecake is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Citizens Financial Group, and The Cheesecake Factory in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Cheesecake Factory and Citizens Financial 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 Citizens Financial Group, are associated (or correlated) with Cheesecake Factory. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Cheesecake Factory has no effect on the direction of Citizens Financial i.e., Citizens Financial and Cheesecake Factory go up and down completely randomly.

Pair Corralation between Citizens Financial and Cheesecake Factory

Assuming the 90 days trading horizon Citizens Financial is expected to generate 9.08 times less return on investment than Cheesecake Factory. But when comparing it to its historical volatility, Citizens Financial Group, is 5.46 times less risky than Cheesecake Factory. It trades about 0.13 of its potential returns per unit of risk. The Cheesecake Factory is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  3,716  in The Cheesecake Factory on September 13, 2024 and sell it today you would earn a total of  1,291  from holding The Cheesecake Factory or generate 34.74% return on investment over 90 days.

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

Citizens Financial Group,  vs.  The Cheesecake Factory

Citizens Financial Group,

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Citizens Financial Group, are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, Citizens Financial is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

The Cheesecake Factory

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Cheesecake Factory are ranked lower than 16 (%) 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.

Pair Trading with Citizens Financial and Cheesecake Factory

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

The idea behind Citizens Financial Group, and The Cheesecake Factory 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.