Correlation Between Dennys Corp and ESH Acquisition

Can any of the company-specific risk be diversified away by investing in both Dennys Corp and ESH 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 Dennys Corp and ESH Acquisition into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Dennys Corp and ESH Acquisition Corp, you can compare the effects of market volatilities on Dennys Corp and ESH 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 Dennys Corp with a short position of ESH Acquisition. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dennys Corp and ESH Acquisition.

Diversification Opportunities for Dennys Corp and ESH Acquisition

-0.05

Correlation Coefficient

Dennys Corp  ESH Acquisition

Good diversification

The 3 months correlation between Dennys and ESH is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Dennys Corp and ESH Acquisition Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ESH Acquisition Corp and Dennys Corp 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 Dennys Corp are associated (or correlated) with ESH Acquisition. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ESH Acquisition Corp has no effect on the direction of Dennys Corp i.e., Dennys Corp and ESH Acquisition go up and down completely randomly.

Pair Corralation between Dennys Corp and ESH Acquisition

Given the investment horizon of 90 days Dennys Corp is expected to under-perform the ESH Acquisition. But the stock apears to be less risky and, when comparing its historical volatility, Dennys Corp is 8.35 times less risky than ESH Acquisition. The stock trades about -0.06 of its potential returns per unit of risk. The ESH Acquisition Corp is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  5.96  in ESH Acquisition Corp on September 15, 2024 and sell it today you would earn a total of  3.04  from holding ESH Acquisition Corp or generate 51.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	66.67%
Values	Daily Returns

Dennys Corp  vs.  ESH Acquisition Corp

Dennys Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dennys Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Dennys Corp is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

ESH Acquisition Corp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ESH Acquisition Corp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, ESH Acquisition reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dennys Corp and ESH Acquisition

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

The idea behind Dennys Corp and ESH 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.