Correlation Between Darden Restaurants and El Pollo

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

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

Diversification Opportunities for Darden Restaurants and El Pollo

-0.67

Correlation Coefficient

Darden Restaurants  El Pollo

Excellent diversification

The 3 months correlation between Darden and LOCO is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and El Pollo Loco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on El Pollo Loco 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 El Pollo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of El Pollo Loco has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and El Pollo go up and down completely randomly.

Pair Corralation between Darden Restaurants and El Pollo

Considering the 90-day investment horizon Darden Restaurants is expected to generate 0.6 times more return on investment than El Pollo. However, Darden Restaurants is 1.66 times less risky than El Pollo. It trades about -0.05 of its potential returns per unit of risk. El Pollo Loco is currently generating about -0.07 per unit of risk. If you would invest  18,335  in Darden Restaurants on October 22, 2024 and sell it today you would lose (160.00) from holding Darden Restaurants or give up 0.87% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	94.74%
Values	Daily Returns

Darden Restaurants  vs.  El Pollo Loco

Darden Restaurants

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, Darden Restaurants demonstrated solid returns over the last few months and may actually be approaching a breakup point.

El Pollo Loco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days El Pollo Loco has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with Darden Restaurants and El Pollo

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

The idea behind Darden Restaurants and El Pollo Loco 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.