Correlation Between Domino’s Pizza and Fiesta Restaurant

Can any of the company-specific risk be diversified away by investing in both Domino’s Pizza and Fiesta Restaurant 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 Domino’s Pizza and Fiesta Restaurant into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Domino’s Pizza and Fiesta Restaurant

0.63

Correlation Coefficient

Domino’s Pizza  Fiesta Restaurant

Poor diversification

The 3 months correlation between Domino’s and Fiesta is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Dominos Pizza Group and Fiesta Restaurant Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fiesta Restaurant and Domino’s Pizza 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 Dominos Pizza Group are associated (or correlated) with Fiesta Restaurant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fiesta Restaurant has no effect on the direction of Domino’s Pizza i.e., Domino’s Pizza and Fiesta Restaurant go up and down completely randomly.

Pair Corralation between Domino’s Pizza and Fiesta Restaurant

Assuming the 90 days horizon Dominos Pizza Group is expected to generate 1.41 times more return on investment than Fiesta Restaurant. However, Domino’s Pizza is 1.41 times more volatile than Fiesta Restaurant Group. It trades about 0.02 of its potential returns per unit of risk. Fiesta Restaurant Group is currently generating about -0.01 per unit of risk. If you would invest  802.00  in Dominos Pizza Group on October 6, 2024 and sell it today you would lose (12.00) from holding Dominos Pizza Group or give up 1.5% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	29.29%
Values	Daily Returns

Dominos Pizza Group  vs.  Fiesta Restaurant Group

Dominos Pizza Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dominos Pizza Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking signals, Domino’s Pizza is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Fiesta Restaurant

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fiesta Restaurant Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Fiesta Restaurant is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Domino’s Pizza and Fiesta Restaurant

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

The idea behind Dominos Pizza Group and Fiesta Restaurant Group 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.