Correlation Between TEXAS ROADHOUSE and RCM TECHNOLOGIES

Can any of the company-specific risk be diversified away by investing in both TEXAS ROADHOUSE and RCM TECHNOLOGIES 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 TEXAS ROADHOUSE and RCM TECHNOLOGIES into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between TEXAS ROADHOUSE and RCM TECHNOLOGIES, you can compare the effects of market volatilities on TEXAS ROADHOUSE and RCM TECHNOLOGIES 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 TEXAS ROADHOUSE with a short position of RCM TECHNOLOGIES. Check out your portfolio center. Please also check ongoing floating volatility patterns of TEXAS ROADHOUSE and RCM TECHNOLOGIES.

Diversification Opportunities for TEXAS ROADHOUSE and RCM TECHNOLOGIES

0.8

Correlation Coefficient

TEXAS ROADHOUSE  RCM TECHNOLOGIES

Very poor diversification

The 3 months correlation between TEXAS and RCM is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding TEXAS ROADHOUSE and RCM TECHNOLOGIES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RCM TECHNOLOGIES and TEXAS ROADHOUSE 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 TEXAS ROADHOUSE are associated (or correlated) with RCM TECHNOLOGIES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RCM TECHNOLOGIES has no effect on the direction of TEXAS ROADHOUSE i.e., TEXAS ROADHOUSE and RCM TECHNOLOGIES go up and down completely randomly.

Pair Corralation between TEXAS ROADHOUSE and RCM TECHNOLOGIES

Assuming the 90 days trading horizon TEXAS ROADHOUSE is expected to generate 1.61 times less return on investment than RCM TECHNOLOGIES. But when comparing it to its historical volatility, TEXAS ROADHOUSE is 1.35 times less risky than RCM TECHNOLOGIES. It trades about 0.13 of its potential returns per unit of risk. RCM TECHNOLOGIES is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  1,750  in RCM TECHNOLOGIES on September 23, 2024 and sell it today you would earn a total of  410.00  from holding RCM TECHNOLOGIES or generate 23.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	92.42%
Values	Daily Returns

TEXAS ROADHOUSE  vs.  RCM TECHNOLOGIES

TEXAS ROADHOUSE

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TEXAS ROADHOUSE are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, TEXAS ROADHOUSE exhibited solid returns over the last few months and may actually be approaching a breakup point.

RCM TECHNOLOGIES

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RCM TECHNOLOGIES are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, RCM TECHNOLOGIES exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TEXAS ROADHOUSE and RCM TECHNOLOGIES

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

The idea behind TEXAS ROADHOUSE and RCM TECHNOLOGIES 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.