Correlation Between Darden Restaurants and AutoZone

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

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

Diversification Opportunities for Darden Restaurants and AutoZone

0.68

Correlation Coefficient

Darden Restaurants  AutoZone

Poor diversification

The 3 months correlation between Darden and AutoZone is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and AutoZone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AutoZone 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 AutoZone. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AutoZone has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and AutoZone go up and down completely randomly.

Pair Corralation between Darden Restaurants and AutoZone

Assuming the 90 days trading horizon Darden Restaurants is expected to generate 3.22 times less return on investment than AutoZone. In addition to that, Darden Restaurants is 1.37 times more volatile than AutoZone. It trades about 0.01 of its total potential returns per unit of risk. AutoZone is currently generating about 0.05 per unit of volatility. If you would invest  319,500  in AutoZone on November 29, 2024 and sell it today you would earn a total of  3,000  from holding AutoZone or generate 0.94% 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.  AutoZone

Darden Restaurants

Risk-Adjusted Performance

OK

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

AutoZone

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AutoZone are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, AutoZone may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Darden Restaurants and AutoZone

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

The idea behind Darden Restaurants and AutoZone 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.