Correlation Between Darden Restaurants and NISSAN CHEMICAL

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

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

Diversification Opportunities for Darden Restaurants and NISSAN CHEMICAL

0.73

Correlation Coefficient

Darden Restaurants  NISSAN CHEMICAL

Poor diversification

The 3 months correlation between Darden and NISSAN is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and NISSAN CHEMICAL IND in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NISSAN CHEMICAL IND 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 NISSAN CHEMICAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NISSAN CHEMICAL IND has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and NISSAN CHEMICAL go up and down completely randomly.

Pair Corralation between Darden Restaurants and NISSAN CHEMICAL

Assuming the 90 days trading horizon Darden Restaurants is expected to generate 1.43 times more return on investment than NISSAN CHEMICAL. However, Darden Restaurants is 1.43 times more volatile than NISSAN CHEMICAL IND. It trades about 0.17 of its potential returns per unit of risk. NISSAN CHEMICAL IND is currently generating about 0.09 per unit of risk. If you would invest  14,102  in Darden Restaurants on August 31, 2024 and sell it today you would earn a total of  2,433  from holding Darden Restaurants or generate 17.25% 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.  NISSAN CHEMICAL IND

Darden Restaurants

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 13 (%) 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.

NISSAN CHEMICAL IND

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NISSAN CHEMICAL IND are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, NISSAN CHEMICAL is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Darden Restaurants and NISSAN CHEMICAL

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

The idea behind Darden Restaurants and NISSAN CHEMICAL IND 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.