Correlation Between Darden Restaurants and Chuangs China

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

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

Diversification Opportunities for Darden Restaurants and Chuangs China

-0.17

Correlation Coefficient

Darden Restaurants  Chuangs China

Good diversification

The 3 months correlation between Darden and Chuangs is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and Chuangs China Investments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chuangs China Investments 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 Chuangs China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chuangs China Investments has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and Chuangs China go up and down completely randomly.

Pair Corralation between Darden Restaurants and Chuangs China

Assuming the 90 days horizon Darden Restaurants is expected to generate 0.27 times more return on investment than Chuangs China. However, Darden Restaurants is 3.65 times less risky than Chuangs China. It trades about 0.04 of its potential returns per unit of risk. Chuangs China Investments is currently generating about -0.01 per unit of risk. If you would invest  14,187  in Darden Restaurants on October 3, 2024 and sell it today you would earn a total of  3,698  from holding Darden Restaurants or generate 26.07% return on investment over 90 days.

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

Darden Restaurants  vs.  Chuangs China Investments

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. Despite nearly fragile basic indicators, Darden Restaurants reported solid returns over the last few months and may actually be approaching a breakup point.

Chuangs China Investments

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Chuangs China Investments has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Chuangs China is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Darden Restaurants and Chuangs China

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

The idea behind Darden Restaurants and Chuangs China Investments 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.