Correlation Between Darden Restaurants and Digital Bros

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

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

Diversification Opportunities for Darden Restaurants and Digital Bros

0.74

Correlation Coefficient

Darden Restaurants  Digital Bros

Poor diversification

The 3 months correlation between Darden and Digital is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and Digital Bros SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Digital Bros SpA 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 Digital Bros. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Digital Bros SpA has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and Digital Bros go up and down completely randomly.

Pair Corralation between Darden Restaurants and Digital Bros

Assuming the 90 days trading horizon Darden Restaurants is expected to generate 2.45 times less return on investment than Digital Bros. In addition to that, Darden Restaurants is 1.35 times more volatile than Digital Bros SpA. It trades about 0.16 of its total potential returns per unit of risk. Digital Bros SpA is currently generating about 0.54 per unit of volatility. If you would invest  949.00  in Digital Bros SpA on October 9, 2024 and sell it today you would earn a total of  271.00  from holding Digital Bros SpA or generate 28.56% 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.  Digital Bros SpA

Darden Restaurants

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Darden Restaurants unveiled solid returns over the last few months and may actually be approaching a breakup point.

Digital Bros SpA

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Digital Bros SpA are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Digital Bros reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Darden Restaurants and Digital Bros

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

The idea behind Darden Restaurants and Digital Bros SpA 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.