Correlation Between T-MOBILE and Darden Restaurants

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

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

Diversification Opportunities for T-MOBILE and Darden Restaurants

0.66

Correlation Coefficient

T-MOBILE  Darden Restaurants

Poor diversification

The 3 months correlation between T-MOBILE and Darden is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding T MOBILE US and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and T-MOBILE 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 T MOBILE US 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 T-MOBILE i.e., T-MOBILE and Darden Restaurants go up and down completely randomly.

Pair Corralation between T-MOBILE and Darden Restaurants

Assuming the 90 days trading horizon T MOBILE US is expected to generate 0.76 times more return on investment than Darden Restaurants. However, T MOBILE US is 1.31 times less risky than Darden Restaurants. It trades about 0.12 of its potential returns per unit of risk. Darden Restaurants is currently generating about 0.06 per unit of risk. If you would invest  14,483  in T MOBILE US on October 5, 2024 and sell it today you would earn a total of  6,857  from holding T MOBILE US or generate 47.35% return on investment over 90 days.

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

T MOBILE US  vs.  Darden Restaurants

T MOBILE US

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days T MOBILE US has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively fragile basic indicators, T-MOBILE unveiled solid returns over the last few months and may actually be approaching a breakup point.

Darden Restaurants

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Darden Restaurants has generated negative risk-adjusted returns adding no value to investors with long positions. 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 T-MOBILE and Darden Restaurants

The main advantage of trading using opposite T-MOBILE and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if T-MOBILE 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 T MOBILE US 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.