Correlation Between United Rentals and Darden Restaurants

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

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

Diversification Opportunities for United Rentals and Darden Restaurants

0.05

Correlation Coefficient

United Rentals  Darden Restaurants

Significant diversification

The 3 months correlation between United and Darden is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding United Rentals and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and United Rentals 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 United Rentals 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 United Rentals i.e., United Rentals and Darden Restaurants go up and down completely randomly.

Pair Corralation between United Rentals and Darden Restaurants

Assuming the 90 days horizon United Rentals is expected to under-perform the Darden Restaurants. In addition to that, United Rentals is 1.38 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 0.03 per unit of volatility. If you would invest  17,992  in Darden Restaurants on December 26, 2024 and sell it today you would earn a total of  478.00  from holding Darden Restaurants or generate 2.66% return on investment over 90 days.

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

United Rentals  vs.  Darden Restaurants

United Rentals

Risk-Adjusted Performance

Very Weak

Over the last 90 days United Rentals 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

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 nearly stable basic indicators, Darden Restaurants is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with United Rentals and Darden Restaurants

The main advantage of trading using opposite United Rentals and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Rentals 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 United Rentals 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.