Correlation Between First Watch and Texas Roadhouse

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

By analyzing existing cross correlation between First Watch Restaurant and Texas Roadhouse, you can compare the effects of market volatilities on First Watch and Texas Roadhouse 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 First Watch with a short position of Texas Roadhouse. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Watch and Texas Roadhouse.

Diversification Opportunities for First Watch and Texas Roadhouse

-0.44

Correlation Coefficient

First Watch  Texas Roadhouse

Very good diversification

The 3 months correlation between First and Texas is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding First Watch Restaurant and Texas Roadhouse in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Roadhouse and First Watch 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 First Watch Restaurant are associated (or correlated) with Texas Roadhouse. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Texas Roadhouse has no effect on the direction of First Watch i.e., First Watch and Texas Roadhouse go up and down completely randomly.

Pair Corralation between First Watch and Texas Roadhouse

Given the investment horizon of 90 days First Watch Restaurant is expected to under-perform the Texas Roadhouse. In addition to that, First Watch is 2.97 times more volatile than Texas Roadhouse. It trades about -0.14 of its total potential returns per unit of risk. Texas Roadhouse is currently generating about 0.43 per unit of volatility. If you would invest  14,939  in Texas Roadhouse on February 17, 2024 and sell it today you would earn a total of  1,959  from holding Texas Roadhouse or generate 13.11% return on investment over 90 days.

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

First Watch Restaurant  vs.  Texas Roadhouse

First Watch Restaurant

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Watch Restaurant has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Texas Roadhouse

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Roadhouse are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain basic indicators, Texas Roadhouse demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with First Watch and Texas Roadhouse

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

The idea behind First Watch Restaurant and Texas Roadhouse 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.