Correlation Between Darden Restaurants and Yihai International

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

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

Diversification Opportunities for Darden Restaurants and Yihai International

0.11

Correlation Coefficient

Darden Restaurants  Yihai International

Average diversification

The 3 months correlation between Darden and Yihai is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and Yihai International Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yihai International 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 Yihai International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yihai International has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and Yihai International go up and down completely randomly.

Pair Corralation between Darden Restaurants and Yihai International

Assuming the 90 days trading horizon Darden Restaurants is expected to generate 4.75 times less return on investment than Yihai International. But when comparing it to its historical volatility, Darden Restaurants is 2.47 times less risky than Yihai International. It trades about 0.1 of its potential returns per unit of risk. Yihai International Holding is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  125.00  in Yihai International Holding on September 17, 2024 and sell it today you would earn a total of  71.00  from holding Yihai International Holding or generate 56.8% 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.  Yihai International Holding

Darden Restaurants

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 8 (%) 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 January 2025.

Yihai International

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Yihai International Holding are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Yihai International reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Darden Restaurants and Yihai International

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

The idea behind Darden Restaurants and Yihai International Holding 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.