Correlation Between Blue Lagoon and Cheesecake Factory

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Can any of the company-specific risk be diversified away by investing in both Blue Lagoon and Cheesecake Factory 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 Blue Lagoon and Cheesecake Factory into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Blue Lagoon Resources and The Cheesecake Factory, you can compare the effects of market volatilities on Blue Lagoon and Cheesecake Factory 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 Blue Lagoon with a short position of Cheesecake Factory. Check out your portfolio center. Please also check ongoing floating volatility patterns of Blue Lagoon and Cheesecake Factory.

Diversification Opportunities for Blue Lagoon and Cheesecake Factory

0.7
  Correlation Coefficient

Poor diversification

The 3 months correlation between Blue and Cheesecake is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Blue Lagoon Resources and The Cheesecake Factory in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on The Cheesecake Factory and Blue Lagoon 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 Blue Lagoon Resources are associated (or correlated) with Cheesecake Factory. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of The Cheesecake Factory has no effect on the direction of Blue Lagoon i.e., Blue Lagoon and Cheesecake Factory go up and down completely randomly.

Pair Corralation between Blue Lagoon and Cheesecake Factory

Assuming the 90 days horizon Blue Lagoon Resources is expected to generate 2.36 times more return on investment than Cheesecake Factory. However, Blue Lagoon is 2.36 times more volatile than The Cheesecake Factory. It trades about 0.08 of its potential returns per unit of risk. The Cheesecake Factory is currently generating about 0.17 per unit of risk. If you would invest  33.00  in Blue Lagoon Resources on May 4, 2025 and sell it today you would earn a total of  7.00  from holding Blue Lagoon Resources or generate 21.21% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Blue Lagoon Resources  vs.  The Cheesecake Factory

 Performance 
       Timeline  
Blue Lagoon Resources 

Risk-Adjusted Performance

Modest

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Blue Lagoon Resources are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Blue Lagoon reported solid returns over the last few months and may actually be approaching a breakup point.
The Cheesecake Factory 

Risk-Adjusted Performance

Good

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in The Cheesecake Factory are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent forward-looking signals, Cheesecake Factory exhibited solid returns over the last few months and may actually be approaching a breakup point.

Blue Lagoon and Cheesecake Factory Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Blue Lagoon and Cheesecake Factory

The main advantage of trading using opposite Blue Lagoon and Cheesecake Factory positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Blue Lagoon position performs unexpectedly, Cheesecake Factory 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 Cheesecake Factory will offset losses from the drop in Cheesecake Factory's long position.
The idea behind Blue Lagoon Resources and The Cheesecake Factory 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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