Correlation Between Darden Restaurants and Algonquin Power

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

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

Diversification Opportunities for Darden Restaurants and Algonquin Power

-0.4

Correlation Coefficient

Darden Restaurants  Algonquin Power

Very good diversification

The 3 months correlation between Darden and Algonquin is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and Algonquin Power Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algonquin Power Utilities 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 Algonquin Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algonquin Power Utilities has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and Algonquin Power go up and down completely randomly.

Pair Corralation between Darden Restaurants and Algonquin Power

Assuming the 90 days trading horizon Darden Restaurants is expected to generate 1.56 times more return on investment than Algonquin Power. However, Darden Restaurants is 1.56 times more volatile than Algonquin Power Utilities. It trades about 0.15 of its potential returns per unit of risk. Algonquin Power Utilities is currently generating about -0.11 per unit of risk. If you would invest  14,775  in Darden Restaurants on October 4, 2024 and sell it today you would earn a total of  3,085  from holding Darden Restaurants or generate 20.88% 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.  Algonquin Power Utilities

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.

Algonquin Power Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Algonquin Power Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady 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 Algonquin Power

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

The idea behind Darden Restaurants and Algonquin Power Utilities 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.