Correlation Between Darden Restaurants and Papa Johns

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

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

Diversification Opportunities for Darden Restaurants and Papa Johns

0.36

Correlation Coefficient

Darden Restaurants  Papa Johns

Weak diversification

The 3 months correlation between Darden and Papa is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and Papa Johns International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Papa Johns 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 Papa Johns. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Papa Johns International has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and Papa Johns go up and down completely randomly.

Pair Corralation between Darden Restaurants and Papa Johns

Considering the 90-day investment horizon Darden Restaurants is expected to generate 0.43 times more return on investment than Papa Johns. However, Darden Restaurants is 2.32 times less risky than Papa Johns. It trades about 0.12 of its potential returns per unit of risk. Papa Johns International is currently generating about 0.03 per unit of risk. If you would invest  18,532  in Darden Restaurants on December 28, 2024 and sell it today you would earn a total of  2,267  from holding Darden Restaurants or generate 12.23% return on investment over 90 days.

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

Darden Restaurants  vs.  Papa Johns International

Darden Restaurants

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 9 (%) 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.

Papa Johns International

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Papa Johns International are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Papa Johns may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Darden Restaurants and Papa Johns

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

The idea behind Darden Restaurants and Papa Johns International 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.