Correlation Between Darden Restaurants and Source JPX

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

By analyzing existing cross correlation between Darden Restaurants and Source JPX Nikkei 400, you can compare the effects of market volatilities on Darden Restaurants and Source JPX 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 Source JPX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Darden Restaurants and Source JPX.

Diversification Opportunities for Darden Restaurants and Source JPX

0.42

Correlation Coefficient

Darden Restaurants  Source JPX

Very weak diversification

The 3 months correlation between Darden and Source is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and Source JPX Nikkei 400 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Source JPX Nikkei 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 Source JPX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Source JPX Nikkei has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and Source JPX go up and down completely randomly.

Pair Corralation between Darden Restaurants and Source JPX

Assuming the 90 days trading horizon Darden Restaurants is expected to generate 4.34 times more return on investment than Source JPX. However, Darden Restaurants is 4.34 times more volatile than Source JPX Nikkei 400. It trades about 0.17 of its potential returns per unit of risk. Source JPX Nikkei 400 is currently generating about 0.03 per unit of risk. If you would invest  16,240  in Darden Restaurants on October 5, 2024 and sell it today you would earn a total of  1,620  from holding Darden Restaurants or generate 9.98% return on investment over 90 days.

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

Darden Restaurants  vs.  Source JPX Nikkei 400

Darden Restaurants

Risk-Adjusted Performance

0 of 100

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.

Source JPX Nikkei

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Source JPX Nikkei 400 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Source JPX is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Darden Restaurants and Source JPX

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

The idea behind Darden Restaurants and Source JPX Nikkei 400 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.