Correlation Between M/I Homes and Darden Restaurants

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

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

Diversification Opportunities for M/I Homes and Darden Restaurants

-0.02

Correlation Coefficient

M/I Homes  Darden Restaurants

Good diversification

The 3 months correlation between M/I and Darden is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding MI Homes and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and M/I Homes 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 MI Homes 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 M/I Homes i.e., M/I Homes and Darden Restaurants go up and down completely randomly.

Pair Corralation between M/I Homes and Darden Restaurants

Assuming the 90 days horizon MI Homes is expected to under-perform the Darden Restaurants. In addition to that, M/I Homes is 1.07 times more volatile than Darden Restaurants. It trades about -0.07 of its total potential returns per unit of risk. Darden Restaurants is currently generating about 0.15 per unit of volatility. If you would invest  14,765  in Darden Restaurants on September 27, 2024 and sell it today you would earn a total of  3,235  from holding Darden Restaurants or generate 21.91% return on investment over 90 days.

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

MI Homes  vs.  Darden Restaurants

M/I Homes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MI Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Darden Restaurants

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Darden Restaurants unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with M/I Homes and Darden Restaurants

The main advantage of trading using opposite M/I Homes and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if M/I Homes 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 MI Homes 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.

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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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.