Correlation Between Darden Restaurants and WisdomTree

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

By analyzing existing cross correlation between Darden Restaurants and WisdomTree SP 500, you can compare the effects of market volatilities on Darden Restaurants and WisdomTree 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 WisdomTree. Check out your portfolio center. Please also check ongoing floating volatility patterns of Darden Restaurants and WisdomTree.

Diversification Opportunities for Darden Restaurants and WisdomTree

0.66

Correlation Coefficient

Darden Restaurants  WisdomTree

Poor diversification

The 3 months correlation between Darden and WisdomTree is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and WisdomTree SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree SP 500 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 WisdomTree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree SP 500 has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and WisdomTree go up and down completely randomly.

Pair Corralation between Darden Restaurants and WisdomTree

Assuming the 90 days trading horizon Darden Restaurants is expected to generate 1.55 times more return on investment than WisdomTree. However, Darden Restaurants is 1.55 times more volatile than WisdomTree SP 500. It trades about 0.17 of its potential returns per unit of risk. WisdomTree SP 500 is currently generating about -0.11 per unit of risk. If you would invest  16,200  in Darden Restaurants on October 4, 2024 and sell it today you would earn a total of  1,660  from holding Darden Restaurants or generate 10.25% 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.  WisdomTree SP 500

Darden Restaurants

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. 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.

WisdomTree SP 500

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree SP 500 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, WisdomTree reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Darden Restaurants and WisdomTree

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

The idea behind Darden Restaurants and WisdomTree SP 500 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.