Correlation Between Darden Restaurants and MI Homes

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

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

Diversification Opportunities for Darden Restaurants and MI Homes

-0.83

Correlation Coefficient

Darden Restaurants  MI Homes

Pay attention - limited upside

The 3 months correlation between Darden and MHO is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and MI Homes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MI 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 MI Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MI Homes has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and MI Homes go up and down completely randomly.

Pair Corralation between Darden Restaurants and MI Homes

Considering the 90-day investment horizon Darden Restaurants is expected to generate 0.8 times more return on investment than MI Homes. However, Darden Restaurants is 1.25 times less risky than MI Homes. It trades about 0.04 of its potential returns per unit of risk. MI Homes is currently generating about -0.13 per unit of risk. If you would invest  18,201  in Darden Restaurants on December 19, 2024 and sell it today you would earn a total of  606.00  from holding Darden Restaurants or generate 3.33% return on investment over 90 days.

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

Darden Restaurants  vs.  MI Homes

Darden Restaurants

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Darden Restaurants is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

MI Homes

Risk-Adjusted Performance

Very Weak

Over the last 90 days MI Homes has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Darden Restaurants and MI Homes

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

The idea behind Darden Restaurants and MI 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 CEOs Directory module to screen CEOs from public companies around the world.