Correlation Between Darden Restaurants and AB SKF

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

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

Diversification Opportunities for Darden Restaurants and AB SKF

0.22

Correlation Coefficient

Darden Restaurants  AB SKF

Modest diversification

The 3 months correlation between Darden and SKFA is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and AB SKF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AB SKF 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 AB SKF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AB SKF has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and AB SKF go up and down completely randomly.

Pair Corralation between Darden Restaurants and AB SKF

Assuming the 90 days trading horizon Darden Restaurants is expected to under-perform the AB SKF. But the stock apears to be less risky and, when comparing its historical volatility, Darden Restaurants is 1.58 times less risky than AB SKF. The stock trades about -0.04 of its potential returns per unit of risk. The AB SKF is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  1,788  in AB SKF on December 21, 2024 and sell it today you would earn a total of  277.00  from holding AB SKF or generate 15.49% return on investment over 90 days.

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

Darden Restaurants  vs.  AB SKF

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

AB SKF

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AB SKF are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, AB SKF reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Darden Restaurants and AB SKF

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

The idea behind Darden Restaurants and AB SKF 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.