Correlation Between Darden Restaurants and International Consolidated

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

By analyzing existing cross correlation between Darden Restaurants and International Consolidated Airlines, you can compare the effects of market volatilities on Darden Restaurants and International Consolidated 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 International Consolidated. Check out your portfolio center. Please also check ongoing floating volatility patterns of Darden Restaurants and International Consolidated.

Diversification Opportunities for Darden Restaurants and International Consolidated

0.59

Correlation Coefficient

Darden Restaurants  International Consolidated

Very weak diversification

The 3 months correlation between Darden and International is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and International Consolidated Air in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Consolidated 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 International Consolidated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Consolidated has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and International Consolidated go up and down completely randomly.

Pair Corralation between Darden Restaurants and International Consolidated

Assuming the 90 days trading horizon Darden Restaurants is expected to generate 4.35 times less return on investment than International Consolidated. In addition to that, Darden Restaurants is 1.31 times more volatile than International Consolidated Airlines. It trades about 0.06 of its total potential returns per unit of risk. International Consolidated Airlines is currently generating about 0.35 per unit of volatility. If you would invest  20,440  in International Consolidated Airlines on September 21, 2024 and sell it today you would earn a total of  9,760  from holding International Consolidated Airlines or generate 47.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Darden Restaurants  vs.  International Consolidated Air

Darden Restaurants

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Darden Restaurants may actually be approaching a critical reversion point that can send shares even higher in January 2025.

International Consolidated

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in International Consolidated Airlines are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, International Consolidated exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Darden Restaurants and International Consolidated

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

The idea behind Darden Restaurants and International Consolidated Airlines 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.