Correlation Between European Wax and Dennys Corp

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

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

Diversification Opportunities for European Wax and Dennys Corp

0.55

Correlation Coefficient

European Wax  Dennys Corp

Very weak diversification

The 3 months correlation between European and Dennys is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding European Wax Center and Dennys Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dennys Corp and European Wax 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 European Wax Center 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 European Wax i.e., European Wax and Dennys Corp go up and down completely randomly.

Pair Corralation between European Wax and Dennys Corp

Given the investment horizon of 90 days European Wax Center is expected to under-perform the Dennys Corp. In addition to that, European Wax is 1.4 times more volatile than Dennys Corp. It trades about -0.04 of its total potential returns per unit of risk. Dennys Corp is currently generating about -0.03 per unit of volatility. If you would invest  1,072  in Dennys Corp on October 5, 2024 and sell it today you would lose (436.00) from holding Dennys Corp or give up 40.67% of portfolio value over 90 days.

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

European Wax Center  vs.  Dennys Corp

European Wax Center

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days European Wax Center has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, European Wax is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Dennys Corp

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dennys Corp are ranked lower than 2 (%) 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 February 2025.

Pair Trading with European Wax and Dennys Corp

The main advantage of trading using opposite European Wax and Dennys Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if European Wax 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 European Wax Center 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.