Correlation Between BJs Restaurants and HYDROFARM HLD

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

By analyzing existing cross correlation between BJs Restaurants and HYDROFARM HLD GRP, you can compare the effects of market volatilities on BJs Restaurants and HYDROFARM HLD 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 BJs Restaurants with a short position of HYDROFARM HLD. Check out your portfolio center. Please also check ongoing floating volatility patterns of BJs Restaurants and HYDROFARM HLD.

Diversification Opportunities for BJs Restaurants and HYDROFARM HLD

0.37

Correlation Coefficient

BJs Restaurants  HYDROFARM HLD

Weak diversification

The 3 months correlation between BJs and HYDROFARM is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding BJs Restaurants and HYDROFARM HLD GRP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HYDROFARM HLD GRP and BJs Restaurants 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 BJs Restaurants are associated (or correlated) with HYDROFARM HLD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HYDROFARM HLD GRP has no effect on the direction of BJs Restaurants i.e., BJs Restaurants and HYDROFARM HLD go up and down completely randomly.

Pair Corralation between BJs Restaurants and HYDROFARM HLD

Assuming the 90 days trading horizon BJs Restaurants is expected to generate 2.55 times less return on investment than HYDROFARM HLD. But when comparing it to its historical volatility, BJs Restaurants is 1.91 times less risky than HYDROFARM HLD. It trades about 0.17 of its potential returns per unit of risk. HYDROFARM HLD GRP is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  40.00  in HYDROFARM HLD GRP on August 31, 2024 and sell it today you would earn a total of  36.00  from holding HYDROFARM HLD GRP or generate 90.0% return on investment over 90 days.

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

BJs Restaurants  vs.  HYDROFARM HLD GRP

BJs Restaurants

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BJs Restaurants are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, BJs Restaurants unveiled solid returns over the last few months and may actually be approaching a breakup point.

HYDROFARM HLD GRP

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in HYDROFARM HLD GRP are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, HYDROFARM HLD reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BJs Restaurants and HYDROFARM HLD

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

The idea behind BJs Restaurants and HYDROFARM HLD GRP 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.