Correlation Between Dennys Corp and First Watch

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

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

Diversification Opportunities for Dennys Corp and First Watch

0.58

Correlation Coefficient

Dennys Corp  First Watch

Very weak diversification

The 3 months correlation between Dennys and First is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Dennys Corp and First Watch Restaurant in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Watch Restaurant 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 First Watch. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Watch Restaurant has no effect on the direction of Dennys Corp i.e., Dennys Corp and First Watch go up and down completely randomly.

Pair Corralation between Dennys Corp and First Watch

Given the investment horizon of 90 days Dennys Corp is expected to under-perform the First Watch. In addition to that, Dennys Corp is 1.45 times more volatile than First Watch Restaurant. It trades about -0.13 of its total potential returns per unit of risk. First Watch Restaurant is currently generating about -0.03 per unit of volatility. If you would invest  1,903  in First Watch Restaurant on December 25, 2024 and sell it today you would lose (157.00) from holding First Watch Restaurant or give up 8.25% of portfolio value over 90 days.

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

Dennys Corp  vs.  First Watch Restaurant

Dennys Corp

Risk-Adjusted Performance

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 uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

First Watch Restaurant

Risk-Adjusted Performance

Very Weak

Over the last 90 days First Watch Restaurant has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, First Watch is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Dennys Corp and First Watch

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

The idea behind Dennys Corp and First Watch Restaurant 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..