Correlation Between Games Workshop and Darden Restaurants

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

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

Diversification Opportunities for Games Workshop and Darden Restaurants

0.74

Correlation Coefficient

Games Workshop  Darden Restaurants

Poor diversification

The 3 months correlation between Games and Darden is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Games Workshop Group and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and Games Workshop 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 Games Workshop Group are associated (or correlated) with Darden Restaurants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Darden Restaurants has no effect on the direction of Games Workshop i.e., Games Workshop and Darden Restaurants go up and down completely randomly.

Pair Corralation between Games Workshop and Darden Restaurants

Assuming the 90 days trading horizon Games Workshop Group is expected to under-perform the Darden Restaurants. But the stock apears to be less risky and, when comparing its historical volatility, Games Workshop Group is 1.7 times less risky than Darden Restaurants. The stock trades about -0.02 of its potential returns per unit of risk. The Darden Restaurants is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  17,060  in Darden Restaurants on September 24, 2024 and sell it today you would earn a total of  475.00  from holding Darden Restaurants or generate 2.78% return on investment over 90 days.

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

Games Workshop Group  vs.  Darden Restaurants

Games Workshop Group

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Games Workshop Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Games Workshop unveiled solid returns over the last few months and may actually be approaching a breakup point.

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 nearly fragile basic indicators, Darden Restaurants reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Games Workshop and Darden Restaurants

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

The idea behind Games Workshop Group and Darden Restaurants 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.