Correlation Between Darden Restaurants and Baker Hughes

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

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

Diversification Opportunities for Darden Restaurants and Baker Hughes

0.72

Correlation Coefficient

Darden Restaurants  Baker Hughes

Poor diversification

The 3 months correlation between Darden and Baker is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and Baker Hughes Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Baker Hughes 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 Baker Hughes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Baker Hughes has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and Baker Hughes go up and down completely randomly.

Pair Corralation between Darden Restaurants and Baker Hughes

Assuming the 90 days trading horizon Darden Restaurants is expected to generate 1.67 times less return on investment than Baker Hughes. In addition to that, Darden Restaurants is 1.08 times more volatile than Baker Hughes Co. It trades about 0.13 of its total potential returns per unit of risk. Baker Hughes Co is currently generating about 0.24 per unit of volatility. If you would invest  3,334  in Baker Hughes Co on October 19, 2024 and sell it today you would earn a total of  1,070  from holding Baker Hughes Co or generate 32.09% return on investment over 90 days.

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

Darden Restaurants  vs.  Baker Hughes Co

Darden Restaurants

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 10 (%) 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.

Baker Hughes

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Baker Hughes Co are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Baker Hughes reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Darden Restaurants and Baker Hughes

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

The idea behind Darden Restaurants and Baker Hughes Co 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.