Correlation Between Darden Restaurants and Rave Restaurant

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

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

Diversification Opportunities for Darden Restaurants and Rave Restaurant

-0.48

Correlation Coefficient

Darden Restaurants  Rave Restaurant

Very good diversification

The 3 months correlation between Darden and Rave is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and Rave Restaurant Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rave Restaurant Group 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 Rave Restaurant. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rave Restaurant Group has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and Rave Restaurant go up and down completely randomly.

Pair Corralation between Darden Restaurants and Rave Restaurant

Considering the 90-day investment horizon Darden Restaurants is expected to generate 0.52 times more return on investment than Rave Restaurant. However, Darden Restaurants is 1.91 times less risky than Rave Restaurant. It trades about 0.05 of its potential returns per unit of risk. Rave Restaurant Group is currently generating about 0.02 per unit of risk. If you would invest  15,013  in Darden Restaurants on October 21, 2024 and sell it today you would earn a total of  3,162  from holding Darden Restaurants or generate 21.06% return on investment over 90 days.

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

Darden Restaurants  vs.  Rave Restaurant Group

Darden Restaurants

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 6 (%) 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.

Rave Restaurant Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rave Restaurant Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Rave Restaurant is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Darden Restaurants and Rave Restaurant

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

The idea behind Darden Restaurants and Rave Restaurant Group 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.