Correlation Between TEXAS ROADHOUSE and ScanSource

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

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

Diversification Opportunities for TEXAS ROADHOUSE and ScanSource

0.65

Correlation Coefficient

TEXAS ROADHOUSE  ScanSource

Poor diversification

The 3 months correlation between TEXAS and ScanSource is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding TEXAS ROADHOUSE and ScanSource in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ScanSource 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 ScanSource. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ScanSource has no effect on the direction of TEXAS ROADHOUSE i.e., TEXAS ROADHOUSE and ScanSource go up and down completely randomly.

Pair Corralation between TEXAS ROADHOUSE and ScanSource

Assuming the 90 days trading horizon TEXAS ROADHOUSE is expected to under-perform the ScanSource. But the stock apears to be less risky and, when comparing its historical volatility, TEXAS ROADHOUSE is 1.07 times less risky than ScanSource. The stock trades about -0.16 of its potential returns per unit of risk. The ScanSource is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  4,860  in ScanSource on September 25, 2024 and sell it today you would lose (160.00) from holding ScanSource or give up 3.29% of portfolio value over 90 days.

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

TEXAS ROADHOUSE  vs.  ScanSource

TEXAS ROADHOUSE

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TEXAS ROADHOUSE are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, TEXAS ROADHOUSE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

ScanSource

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in ScanSource are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, ScanSource reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with TEXAS ROADHOUSE and ScanSource

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

The idea behind TEXAS ROADHOUSE and ScanSource 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.