Correlation Between Dine Brands and FAT Brands

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

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

Diversification Opportunities for Dine Brands and FAT Brands

-0.02

Correlation Coefficient

Dine Brands  FAT Brands

Good diversification

The 3 months correlation between Dine and FAT is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Dine Brands Global and FAT Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FAT Brands and Dine Brands 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 Dine Brands Global are associated (or correlated) with FAT Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FAT Brands has no effect on the direction of Dine Brands i.e., Dine Brands and FAT Brands go up and down completely randomly.

Pair Corralation between Dine Brands and FAT Brands

Considering the 90-day investment horizon Dine Brands Global is expected to under-perform the FAT Brands. But the stock apears to be less risky and, when comparing its historical volatility, Dine Brands Global is 1.82 times less risky than FAT Brands. The stock trades about -0.04 of its potential returns per unit of risk. The FAT Brands is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  430.00  in FAT Brands on September 20, 2024 and sell it today you would earn a total of  35.40  from holding FAT Brands or generate 8.23% return on investment over 90 days.

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

Dine Brands Global  vs.  FAT Brands

Dine Brands Global

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dine Brands Global are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Dine Brands is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

FAT Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FAT Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, FAT Brands is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Dine Brands and FAT Brands

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

The idea behind Dine Brands Global and FAT Brands 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.