Correlation Between Darden Restaurants and European Metals

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

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

Diversification Opportunities for Darden Restaurants and European Metals

-0.49

Correlation Coefficient

Darden Restaurants  European Metals

Very good diversification

The 3 months correlation between Darden and European is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and European Metals Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on European Metals Holdings and Darden Restaurants 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 Darden Restaurants are associated (or correlated) with European Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of European Metals Holdings has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and European Metals go up and down completely randomly.

Pair Corralation between Darden Restaurants and European Metals

Assuming the 90 days trading horizon Darden Restaurants is expected to generate 0.7 times more return on investment than European Metals. However, Darden Restaurants is 1.44 times less risky than European Metals. It trades about 0.11 of its potential returns per unit of risk. European Metals Holdings is currently generating about 0.02 per unit of risk. If you would invest  15,740  in Darden Restaurants on October 11, 2024 and sell it today you would earn a total of  2,535  from holding Darden Restaurants or generate 16.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Darden Restaurants  vs.  European Metals Holdings

Darden Restaurants

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Darden Restaurants unveiled solid returns over the last few months and may actually be approaching a breakup point.

European Metals Holdings

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in European Metals Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, European Metals is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Darden Restaurants and European Metals

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

The idea behind Darden Restaurants and European Metals Holdings 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .