Correlation Between Aristocrat Leisure and Darden Restaurants

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

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

Diversification Opportunities for Aristocrat Leisure and Darden Restaurants

0.79

Correlation Coefficient

Aristocrat Leisure  Darden Restaurants

Poor diversification

The 3 months correlation between Aristocrat and Darden is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Aristocrat Leisure Limited and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and Aristocrat Leisure 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 Aristocrat Leisure Limited 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 Aristocrat Leisure i.e., Aristocrat Leisure and Darden Restaurants go up and down completely randomly.

Pair Corralation between Aristocrat Leisure and Darden Restaurants

Assuming the 90 days horizon Aristocrat Leisure Limited is expected to generate 1.24 times more return on investment than Darden Restaurants. However, Aristocrat Leisure is 1.24 times more volatile than Darden Restaurants. It trades about 0.09 of its potential returns per unit of risk. Darden Restaurants is currently generating about 0.05 per unit of risk. If you would invest  1,977  in Aristocrat Leisure Limited on October 4, 2024 and sell it today you would earn a total of  2,143  from holding Aristocrat Leisure Limited or generate 108.4% return on investment over 90 days.

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

Aristocrat Leisure Limited  vs.  Darden Restaurants

Aristocrat Leisure

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aristocrat Leisure Limited are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Aristocrat Leisure reported solid returns over the last few months and may actually be approaching a breakup point.

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

Pair Trading with Aristocrat Leisure and Darden Restaurants

The main advantage of trading using opposite Aristocrat Leisure and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aristocrat Leisure 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 Aristocrat Leisure Limited 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.