Correlation Between Cracker Barrel and Rave Restaurant

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

By analyzing existing cross correlation between Cracker Barrel Old and Rave Restaurant Group, you can compare the effects of market volatilities on Cracker Barrel and Rave Restaurant 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 Cracker Barrel with a short position of Rave Restaurant. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cracker Barrel and Rave Restaurant.

Diversification Opportunities for Cracker Barrel and Rave Restaurant

-0.32

Correlation Coefficient

Cracker Barrel  Rave Restaurant

Very good diversification

The 3 months correlation between Cracker and Rave is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Cracker Barrel Old and Rave Restaurant Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rave Restaurant Group and Cracker Barrel 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 Cracker Barrel Old are associated (or correlated) with Rave Restaurant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rave Restaurant Group has no effect on the direction of Cracker Barrel i.e., Cracker Barrel and Rave Restaurant go up and down completely randomly.

Pair Corralation between Cracker Barrel and Rave Restaurant

Given the investment horizon of 90 days Cracker Barrel Old is expected to under-perform the Rave Restaurant. In addition to that, Cracker Barrel is 1.74 times more volatile than Rave Restaurant Group. It trades about -0.25 of its total potential returns per unit of risk. Rave Restaurant Group is currently generating about 0.02 per unit of volatility. If you would invest  209.00  in Rave Restaurant Group on January 29, 2024 and sell it today you would earn a total of  1.00  from holding Rave Restaurant Group or generate 0.48% return on investment over 90 days.

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

Cracker Barrel Old  vs.  Rave Restaurant Group

Cracker Barrel Old

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cracker Barrel Old 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 quite persistent which may send shares a bit higher in May 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Rave Restaurant Group

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rave Restaurant Group are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Rave Restaurant may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Cracker Barrel and Rave Restaurant

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

The idea behind Cracker Barrel Old and Rave Restaurant Group 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.