Correlation Between Darden Restaurants and WD 40

Can any of the company-specific risk be diversified away by investing in both Darden Restaurants and WD 40 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 WD 40 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Darden Restaurants and WD 40 Company, you can compare the effects of market volatilities on Darden Restaurants and WD 40 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 WD 40. Check out your portfolio center. Please also check ongoing floating volatility patterns of Darden Restaurants and WD 40.

Diversification Opportunities for Darden Restaurants and WD 40

-0.69

Correlation Coefficient

Darden Restaurants  WD 40

Excellent diversification

The 3 months correlation between Darden and WD1 is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and WD 40 Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WD 40 Company 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 WD 40. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WD 40 Company has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and WD 40 go up and down completely randomly.

Pair Corralation between Darden Restaurants and WD 40

Assuming the 90 days trading horizon Darden Restaurants is expected to generate 0.95 times more return on investment than WD 40. However, Darden Restaurants is 1.05 times less risky than WD 40. It trades about -0.04 of its potential returns per unit of risk. WD 40 Company is currently generating about -0.08 per unit of risk. If you would invest  17,858  in Darden Restaurants on December 21, 2024 and sell it today you would lose (768.00) from holding Darden Restaurants or give up 4.3% of portfolio value over 90 days.

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

Darden Restaurants  vs.  WD 40 Company

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.

WD 40 Company

Risk-Adjusted Performance

Very Weak

Over the last 90 days WD 40 Company 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 WD 40

The main advantage of trading using opposite Darden Restaurants and WD 40 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Darden Restaurants position performs unexpectedly, WD 40 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 WD 40 will offset losses from the drop in WD 40's long position.

The idea behind Darden Restaurants and WD 40 Company 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.