Correlation Between McDonalds and Dine Brands

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

Diversification Opportunities for McDonalds and Dine Brands

0.57
  Correlation Coefficient

Very weak diversification

The 3 months correlation between McDonalds and Dine is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding McDonalds and Dine Brands Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dine Brands Global and McDonalds 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 McDonalds are associated (or correlated) with Dine Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dine Brands Global has no effect on the direction of McDonalds i.e., McDonalds and Dine Brands go up and down completely randomly.

Pair Corralation between McDonalds and Dine Brands

Considering the 90-day investment horizon McDonalds is expected to under-perform the Dine Brands. But the stock apears to be less risky and, when comparing its historical volatility, McDonalds is 3.36 times less risky than Dine Brands. The stock trades about -0.04 of its potential returns per unit of risk. The Dine Brands Global is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,989  in Dine Brands Global on November 2, 2024 and sell it today you would earn a total of  84.00  from holding Dine Brands Global or generate 2.81% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

McDonalds  vs.  Dine Brands Global

 Performance 
       Timeline  
McDonalds 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days McDonalds has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, McDonalds is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.
Dine Brands Global 

Risk-Adjusted Performance

3 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Dine Brands Global are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating forward indicators, Dine Brands may actually be approaching a critical reversion point that can send shares even higher in March 2025.

McDonalds and Dine Brands Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with McDonalds and Dine Brands

The main advantage of trading using opposite McDonalds and Dine Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if McDonalds position performs unexpectedly, Dine Brands 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 Dine Brands will offset losses from the drop in Dine Brands' long position.
The idea behind McDonalds and Dine Brands Global 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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