Correlation Between PPG INDUSTRIES and Darden Restaurants

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

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

Diversification Opportunities for PPG INDUSTRIES and Darden Restaurants

-0.08

Correlation Coefficient

PPG INDUSTRIES  Darden Restaurants

Good diversification

The 3 months correlation between PPG and Darden is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding PPG INDUSTRIES and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and PPG INDUSTRIES 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 PPG INDUSTRIES 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 PPG INDUSTRIES i.e., PPG INDUSTRIES and Darden Restaurants go up and down completely randomly.

Pair Corralation between PPG INDUSTRIES and Darden Restaurants

Assuming the 90 days trading horizon PPG INDUSTRIES is expected to under-perform the Darden Restaurants. But the stock apears to be less risky and, when comparing its historical volatility, PPG INDUSTRIES is 2.99 times less risky than Darden Restaurants. The stock trades about -0.34 of its potential returns per unit of risk. The Darden Restaurants is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  16,020  in Darden Restaurants on October 8, 2024 and sell it today you would earn a total of  2,070  from holding Darden Restaurants or generate 12.92% return on investment over 90 days.

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

PPG INDUSTRIES  vs.  Darden Restaurants

PPG INDUSTRIES

Risk-Adjusted Performance

0 of 100

Very Weak

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

Darden Restaurants

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Darden Restaurants unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PPG INDUSTRIES and Darden Restaurants

The main advantage of trading using opposite PPG INDUSTRIES and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PPG INDUSTRIES 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 PPG INDUSTRIES 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.