Correlation Between Rave Restaurant and Dennys Corp

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

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

Diversification Opportunities for Rave Restaurant and Dennys Corp

0.27

Correlation Coefficient

Rave Restaurant  Dennys Corp

Modest diversification

The 3 months correlation between Rave and Dennys is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Rave Restaurant Group and Dennys Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dennys Corp and Rave Restaurant 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 Rave Restaurant Group 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 Rave Restaurant i.e., Rave Restaurant and Dennys Corp go up and down completely randomly.

Pair Corralation between Rave Restaurant and Dennys Corp

Given the investment horizon of 90 days Rave Restaurant Group is expected to generate 1.06 times more return on investment than Dennys Corp. However, Rave Restaurant is 1.06 times more volatile than Dennys Corp. It trades about 0.22 of its potential returns per unit of risk. Dennys Corp is currently generating about 0.05 per unit of risk. If you would invest  176.00  in Rave Restaurant Group on September 3, 2024 and sell it today you would earn a total of  125.00  from holding Rave Restaurant Group or generate 71.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Rave Restaurant Group  vs.  Dennys Corp

Rave Restaurant Group

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rave Restaurant Group are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Rave Restaurant exhibited solid returns over the last few months and may actually be approaching a breakup point.

Dennys Corp

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Dennys Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Dennys Corp may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Rave Restaurant and Dennys Corp

The main advantage of trading using opposite Rave Restaurant and Dennys Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rave Restaurant 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 Rave Restaurant Group 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.

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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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.