Correlation Between Darden Restaurants and Columbia Sportswear

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Can any of the company-specific risk be diversified away by investing in both Darden Restaurants and Columbia Sportswear 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 Columbia Sportswear into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Darden Restaurants and Columbia Sportswear, you can compare the effects of market volatilities on Darden Restaurants and Columbia Sportswear 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 Columbia Sportswear. Check out your portfolio center. Please also check ongoing floating volatility patterns of Darden Restaurants and Columbia Sportswear.

Diversification Opportunities for Darden Restaurants and Columbia Sportswear

0.77
  Correlation Coefficient

Poor diversification

The 3 months correlation between Darden and Columbia is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and Columbia Sportswear in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Columbia Sportswear 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 Columbia Sportswear. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Columbia Sportswear has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and Columbia Sportswear go up and down completely randomly.

Pair Corralation between Darden Restaurants and Columbia Sportswear

Assuming the 90 days trading horizon Darden Restaurants is expected to generate 0.86 times more return on investment than Columbia Sportswear. However, Darden Restaurants is 1.17 times less risky than Columbia Sportswear. It trades about 0.09 of its potential returns per unit of risk. Columbia Sportswear is currently generating about 0.05 per unit of risk. If you would invest  12,401  in Darden Restaurants on October 5, 2024 and sell it today you would earn a total of  5,724  from holding Darden Restaurants or generate 46.16% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Darden Restaurants  vs.  Columbia Sportswear

 Performance 
       Timeline  
Darden Restaurants 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Good
Over the last 90 days Darden Restaurants has generated negative risk-adjusted returns adding no value to investors with long positions. 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.
Columbia Sportswear 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
OK
Over the last 90 days Columbia Sportswear has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, Columbia Sportswear may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Darden Restaurants and Columbia Sportswear Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Darden Restaurants and Columbia Sportswear

The main advantage of trading using opposite Darden Restaurants and Columbia Sportswear positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Darden Restaurants position performs unexpectedly, Columbia Sportswear 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 Columbia Sportswear will offset losses from the drop in Columbia Sportswear's long position.
The idea behind Darden Restaurants and Columbia Sportswear 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 Global Correlations module to find global opportunities by holding instruments from different markets.

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