Correlation Between Darden Restaurants and XLMedia PLC

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

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

Diversification Opportunities for Darden Restaurants and XLMedia PLC

-0.7

Correlation Coefficient

Darden Restaurants  XLMedia PLC

Excellent diversification

The 3 months correlation between Darden and XLMedia is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and XLMedia PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XLMedia PLC 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 XLMedia PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XLMedia PLC has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and XLMedia PLC go up and down completely randomly.

Pair Corralation between Darden Restaurants and XLMedia PLC

Assuming the 90 days trading horizon Darden Restaurants is expected to generate 0.72 times more return on investment than XLMedia PLC. However, Darden Restaurants is 1.39 times less risky than XLMedia PLC. It trades about 0.13 of its potential returns per unit of risk. XLMedia PLC is currently generating about -0.03 per unit of risk. If you would invest  15,979  in Darden Restaurants on October 27, 2024 and sell it today you would earn a total of  2,805  from holding Darden Restaurants or generate 17.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.16%
Values	Daily Returns

Darden Restaurants  vs.  XLMedia PLC

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 unsteady basic indicators, Darden Restaurants unveiled solid returns over the last few months and may actually be approaching a breakup point.

XLMedia PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days XLMedia PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, XLMedia PLC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Darden Restaurants and XLMedia PLC

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

The idea behind Darden Restaurants and XLMedia PLC 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.

Check out your portfolio center.

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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.