Correlation Between Darden Restaurants and Penn National

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

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

Diversification Opportunities for Darden Restaurants and Penn National

0.47

Correlation Coefficient

Darden Restaurants  Penn National

Very weak diversification

The 3 months correlation between Darden and Penn is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and Penn National Gaming in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penn National Gaming 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 Penn National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Penn National Gaming has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and Penn National go up and down completely randomly.

Pair Corralation between Darden Restaurants and Penn National

Assuming the 90 days trading horizon Darden Restaurants is expected to generate 0.46 times more return on investment than Penn National. However, Darden Restaurants is 2.18 times less risky than Penn National. It trades about -0.04 of its potential returns per unit of risk. Penn National Gaming is currently generating about -0.07 per unit of risk. If you would invest  17,858  in Darden Restaurants on December 21, 2024 and sell it today you would lose (703.00) from holding Darden Restaurants or give up 3.94% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Darden Restaurants  vs.  Penn National Gaming

Darden Restaurants

Risk-Adjusted Performance

Very Weak

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 stable basic indicators, Darden Restaurants is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Penn National Gaming

Risk-Adjusted Performance

Very Weak

Over the last 90 days Penn National Gaming has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Darden Restaurants and Penn National

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

The idea behind Darden Restaurants and Penn National Gaming 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 CEOs Directory module to screen CEOs from public companies around the world.