Correlation Between Dine Brands and Starbucks

Can any of the company-specific risk be diversified away by investing in both Dine Brands and Starbucks 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 Starbucks 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 Starbucks, you can compare the effects of market volatilities on Dine Brands and Starbucks 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 Starbucks. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dine Brands and Starbucks.

Diversification Opportunities for Dine Brands and Starbucks

0.42

Correlation Coefficient

Dine Brands  Starbucks

Very weak diversification

The 3 months correlation between Dine and Starbucks is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Dine Brands Global and Starbucks in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Starbucks 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 Starbucks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Starbucks has no effect on the direction of Dine Brands i.e., Dine Brands and Starbucks go up and down completely randomly.

Pair Corralation between Dine Brands and Starbucks

Considering the 90-day investment horizon Dine Brands Global is expected to generate 1.2 times more return on investment than Starbucks. However, Dine Brands is 1.2 times more volatile than Starbucks. It trades about 0.03 of its potential returns per unit of risk. Starbucks is currently generating about -0.15 per unit of risk. If you would invest  4,284  in Dine Brands Global on February 6, 2024 and sell it today you would earn a total of  199.00  from holding Dine Brands Global or generate 4.65% return on investment over 90 days.

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

Dine Brands Global  vs.  Starbucks

Dine Brands Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dine Brands Global has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Dine Brands is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Starbucks

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Starbucks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Dine Brands and Starbucks

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

The idea behind Dine Brands Global and Starbucks 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.