Correlation Between Cheesecake Factory and Wizz Air

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

Diversification Opportunities for Cheesecake Factory and Wizz Air

0.51

Correlation Coefficient

Cheesecake Factory  Wizz Air

Very weak diversification

The 3 months correlation between Cheesecake and Wizz is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding The Cheesecake Factory and Wizz Air Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wizz Air Holdings 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 Wizz Air. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wizz Air Holdings has no effect on the direction of Cheesecake Factory i.e., Cheesecake Factory and Wizz Air go up and down completely randomly.

Pair Corralation between Cheesecake Factory and Wizz Air

Given the investment horizon of 90 days The Cheesecake Factory is expected to generate 0.63 times more return on investment than Wizz Air. However, The Cheesecake Factory is 1.58 times less risky than Wizz Air. It trades about -0.14 of its potential returns per unit of risk. Wizz Air Holdings is currently generating about -0.12 per unit of risk. If you would invest  3,660  in The Cheesecake Factory on February 1, 2024 and sell it today you would lose (208.00) from holding The Cheesecake Factory or give up 5.68% of portfolio value over 90 days.

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

The Cheesecake Factory  vs.  Wizz Air Holdings

The Cheesecake Factory

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days The Cheesecake Factory has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward-looking signals, Cheesecake Factory is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Wizz Air Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wizz Air Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Wizz Air is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Cheesecake Factory and Wizz Air

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

The idea behind The Cheesecake Factory and Wizz Air Holdings 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.