Correlation Between Darden Restaurants and Fast Retailing

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

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

Diversification Opportunities for Darden Restaurants and Fast Retailing

-0.67

Correlation Coefficient

Darden Restaurants  Fast Retailing

Excellent diversification

The 3 months correlation between Darden and Fast is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and Fast Retailing Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fast Retailing 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 Fast Retailing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fast Retailing has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and Fast Retailing go up and down completely randomly.

Pair Corralation between Darden Restaurants and Fast Retailing

Assuming the 90 days trading horizon Darden Restaurants is expected to generate 1.21 times more return on investment than Fast Retailing. However, Darden Restaurants is 1.21 times more volatile than Fast Retailing Co. It trades about 0.11 of its potential returns per unit of risk. Fast Retailing Co is currently generating about -0.06 per unit of risk. If you would invest  16,315  in Darden Restaurants on November 30, 2024 and sell it today you would earn a total of  2,360  from holding Darden Restaurants or generate 14.47% return on investment over 90 days.

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

Darden Restaurants  vs.  Fast Retailing Co

Darden Restaurants

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 8 (%) 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.

Fast Retailing

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fast Retailing Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Darden Restaurants and Fast Retailing

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

The idea behind Darden Restaurants and Fast Retailing 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.