Correlation Between Merck and Darden Restaurants,

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

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

Diversification Opportunities for Merck and Darden Restaurants,

0.03

Correlation Coefficient

Merck  Darden Restaurants,

Significant diversification

The 3 months correlation between Merck and Darden is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Merck Co and Darden Restaurants, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants, and Merck 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 Merck Co 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 Merck i.e., Merck and Darden Restaurants, go up and down completely randomly.

Pair Corralation between Merck and Darden Restaurants,

Assuming the 90 days trading horizon Merck Co is expected to under-perform the Darden Restaurants,. But the stock apears to be less risky and, when comparing its historical volatility, Merck Co is 1.02 times less risky than Darden Restaurants,. The stock trades about -0.11 of its potential returns per unit of risk. The Darden Restaurants, is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  27,948  in Darden Restaurants, on December 23, 2024 and sell it today you would earn a total of  668.00  from holding Darden Restaurants, or generate 2.39% return on investment over 90 days.

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

Merck Co  vs.  Darden Restaurants,

Merck

Risk-Adjusted Performance

Very Weak

Over the last 90 days Merck Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's fundamental indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Darden Restaurants,

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants, are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Darden Restaurants, is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Merck and Darden Restaurants,

The main advantage of trading using opposite Merck and Darden Restaurants, positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Merck 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,'s long position.

The idea behind Merck Co 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.