Correlation Between Darden Restaurants and VARIOUS EATERIES

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

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

Diversification Opportunities for Darden Restaurants and VARIOUS EATERIES

-0.54

Correlation Coefficient

Darden Restaurants  VARIOUS EATERIES

Excellent diversification

The 3 months correlation between Darden and VARIOUS is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and VARIOUS EATERIES LS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VARIOUS EATERIES 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 VARIOUS EATERIES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VARIOUS EATERIES has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and VARIOUS EATERIES go up and down completely randomly.

Pair Corralation between Darden Restaurants and VARIOUS EATERIES

Assuming the 90 days horizon Darden Restaurants is expected to generate 0.66 times more return on investment than VARIOUS EATERIES. However, Darden Restaurants is 1.52 times less risky than VARIOUS EATERIES. It trades about 0.05 of its potential returns per unit of risk. VARIOUS EATERIES LS is currently generating about -0.04 per unit of risk. If you would invest  12,835  in Darden Restaurants on October 5, 2024 and sell it today you would earn a total of  5,170  from holding Darden Restaurants or generate 40.28% return on investment over 90 days.

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

Darden Restaurants  vs.  VARIOUS EATERIES LS

Darden Restaurants

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Darden Restaurants has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain basic indicators, Darden Restaurants reported solid returns over the last few months and may actually be approaching a breakup point.

VARIOUS EATERIES

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VARIOUS EATERIES LS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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.

Pair Trading with Darden Restaurants and VARIOUS EATERIES

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

The idea behind Darden Restaurants and VARIOUS EATERIES LS 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.