Correlation Between Charter Communications and Darden Restaurants

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

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

Diversification Opportunities for Charter Communications and Darden Restaurants

0.71

Correlation Coefficient

Charter Communications  Darden Restaurants

Poor diversification

The 3 months correlation between Charter and Darden is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Charter Communications and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and Charter Communications 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 Charter Communications 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 Charter Communications i.e., Charter Communications and Darden Restaurants go up and down completely randomly.

Pair Corralation between Charter Communications and Darden Restaurants

Assuming the 90 days trading horizon Charter Communications is expected to under-perform the Darden Restaurants. But the stock apears to be less risky and, when comparing its historical volatility, Charter Communications is 1.36 times less risky than Darden Restaurants. The stock trades about -0.19 of its potential returns per unit of risk. The Darden Restaurants is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  16,490  in Darden Restaurants on September 27, 2024 and sell it today you would earn a total of  1,510  from holding Darden Restaurants or generate 9.16% return on investment over 90 days.

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

Charter Communications  vs.  Darden Restaurants

Charter Communications

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Charter Communications are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Charter Communications unveiled 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 fragile basic indicators, Darden Restaurants unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Charter Communications and Darden Restaurants

The main advantage of trading using opposite Charter Communications and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Charter Communications 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 Charter Communications 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.