Correlation Between Walmart and Darden Restaurants

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

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

Diversification Opportunities for Walmart and Darden Restaurants

-0.35

Correlation Coefficient

Walmart  Darden Restaurants

Very good diversification

The 3 months correlation between Walmart and Darden is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Walmart and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and Walmart 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 Walmart are associated (or correlated) with Darden Restaurants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Darden Restaurants has no effect on the direction of Walmart i.e., Walmart and Darden Restaurants go up and down completely randomly.

Pair Corralation between Walmart and Darden Restaurants

Assuming the 90 days trading horizon Walmart is expected to generate 21.52 times less return on investment than Darden Restaurants. But when comparing it to its historical volatility, Walmart is 31.99 times less risky than Darden Restaurants. It trades about 0.13 of its potential returns per unit of risk. Darden Restaurants is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  18,488  in Darden Restaurants on December 24, 2024 and sell it today you would earn a total of  1,347  from holding Darden Restaurants or generate 7.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	93.55%
Values	Daily Returns

Walmart  vs.  Darden Restaurants

Walmart

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Walmart are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Walmart is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Darden Restaurants

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 6 (%) 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 April 2025.

Pair Trading with Walmart and Darden Restaurants

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

The idea behind Walmart and Darden Restaurants 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.