Correlation Between Tri Pointe and Darden Restaurants

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

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

Diversification Opportunities for Tri Pointe and Darden Restaurants

0.04

Correlation Coefficient

Tri Pointe  Darden Restaurants

Significant diversification

The 3 months correlation between Tri and Darden is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Tri Pointe Homes and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and Tri Pointe 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 Tri Pointe Homes 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 Tri Pointe i.e., Tri Pointe and Darden Restaurants go up and down completely randomly.

Pair Corralation between Tri Pointe and Darden Restaurants

Assuming the 90 days horizon Tri Pointe Homes is expected to under-perform the Darden Restaurants. In addition to that, Tri Pointe is 1.43 times more volatile than Darden Restaurants. It trades about -0.07 of its total potential returns per unit of risk. Darden Restaurants is currently generating about 0.08 per unit of volatility. If you would invest  17,719  in Darden Restaurants on December 29, 2024 and sell it today you would earn a total of  1,481  from holding Darden Restaurants or generate 8.36% return on investment over 90 days.

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

Tri Pointe Homes  vs.  Darden Restaurants

Tri Pointe Homes

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tri Pointe Homes has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Darden Restaurants

Risk-Adjusted Performance

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. In spite of comparatively uncertain basic indicators, Darden Restaurants may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Tri Pointe and Darden Restaurants

The main advantage of trading using opposite Tri Pointe and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tri Pointe 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 Tri Pointe Homes 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.