Correlation Between Wendys and Dennys Corp
Can any of the company-specific risk be diversified away by investing in both Wendys and Dennys Corp 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 Wendys and Dennys Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Wendys Co and Dennys Corp, you can compare the effects of market volatilities on Wendys and Dennys Corp 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 Wendys with a short position of Dennys Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wendys and Dennys Corp.
Diversification Opportunities for Wendys and Dennys Corp
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Wendys and Dennys is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding The Wendys Co and Dennys Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dennys Corp and Wendys 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 Wendys Co are associated (or correlated) with Dennys Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dennys Corp has no effect on the direction of Wendys i.e., Wendys and Dennys Corp go up and down completely randomly.
Pair Corralation between Wendys and Dennys Corp
Considering the 90-day investment horizon The Wendys Co is expected to generate 0.54 times more return on investment than Dennys Corp. However, The Wendys Co is 1.86 times less risky than Dennys Corp. It trades about 0.02 of its potential returns per unit of risk. Dennys Corp is currently generating about -0.05 per unit of risk. If you would invest 1,734 in The Wendys Co on August 25, 2024 and sell it today you would earn a total of 64.00 from holding The Wendys Co or generate 3.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Wendys Co vs. Dennys Corp
Performance |
| Timeline |
| The Wendys |
| Dennys Corp |
Wendys and Dennys Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wendys and Dennys Corp
The main advantage of trading using opposite Wendys and Dennys Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wendys position performs unexpectedly, Dennys Corp 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 Dennys Corp will offset losses from the drop in Dennys Corp's long position.The idea behind The Wendys Co and Dennys 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.Check out your portfolio center.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 Anywhere module to track or share privately all of your investments from the convenience of any device.
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