Correlation Between Cheesecake Factory and Nextnav Acquisition

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

Diversification Opportunities for Cheesecake Factory and Nextnav Acquisition

0.94

Correlation Coefficient

Cheesecake Factory  Nextnav Acquisition

Almost no diversification

The 3 months correlation between Cheesecake and Nextnav is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding The Cheesecake Factory and Nextnav Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextnav Acquisition Corp 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 Nextnav Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextnav Acquisition Corp has no effect on the direction of Cheesecake Factory i.e., Cheesecake Factory and Nextnav Acquisition go up and down completely randomly.

Pair Corralation between Cheesecake Factory and Nextnav Acquisition

Given the investment horizon of 90 days Cheesecake Factory is expected to generate 3.44 times less return on investment than Nextnav Acquisition. But when comparing it to its historical volatility, The Cheesecake Factory is 1.77 times less risky than Nextnav Acquisition. It trades about 0.18 of its potential returns per unit of risk. Nextnav Acquisition Corp is currently generating about 0.34 of returns per unit of risk over similar time horizon. If you would invest  1,286  in Nextnav Acquisition Corp on September 6, 2024 and sell it today you would earn a total of  418.00  from holding Nextnav Acquisition Corp or generate 32.5% return on investment over 90 days.

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

The Cheesecake Factory  vs.  Nextnav Acquisition Corp

The Cheesecake Factory

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in The Cheesecake Factory are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady forward-looking signals, Cheesecake Factory exhibited solid returns over the last few months and may actually be approaching a breakup point.

Nextnav Acquisition Corp

Risk-Adjusted Performance

31 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Nextnav Acquisition Corp are ranked lower than 31 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Nextnav Acquisition displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cheesecake Factory and Nextnav Acquisition

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

The idea behind The Cheesecake Factory and Nextnav Acquisition Corp 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.