Correlation Between Darden Restaurants and Tri Pointe

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

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

Diversification Opportunities for Darden Restaurants and Tri Pointe

0.04

Correlation Coefficient

Darden Restaurants  Tri Pointe

Significant diversification

The 3 months correlation between Darden and Tri is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and Tri Pointe Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tri Pointe Homes 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 Tri Pointe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tri Pointe Homes has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and Tri Pointe go up and down completely randomly.

Pair Corralation between Darden Restaurants and Tri Pointe

Assuming the 90 days trading horizon Darden Restaurants is expected to generate 0.7 times more return on investment than Tri Pointe. However, Darden Restaurants is 1.43 times less risky than Tri Pointe. It trades about 0.08 of its potential returns per unit of risk. Tri Pointe Homes is currently generating about -0.07 per unit of risk. If you would invest  17,719  in Darden Restaurants on December 29, 2024 and sell it today you would earn a total of  1,481  from holding Darden Restaurants or generate 8.36% return on investment over 90 days.

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

Darden Restaurants  vs.  Tri Pointe Homes

Darden Restaurants

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Darden Restaurants may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Tri Pointe Homes

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tri Pointe Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Darden Restaurants and Tri Pointe

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

The idea behind Darden Restaurants and Tri Pointe Homes 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.