Correlation Between Darden Restaurants and Aurora Investment
Can any of the company-specific risk be diversified away by investing in both Darden Restaurants and Aurora Investment 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 Darden Restaurants and Aurora Investment into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Darden Restaurants and Aurora Investment Trust, you can compare the effects of market volatilities on Darden Restaurants and Aurora Investment 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 Darden Restaurants with a short position of Aurora Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Darden Restaurants and Aurora Investment.
Diversification Opportunities for Darden Restaurants and Aurora Investment
-0.64 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Darden and Aurora is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and Aurora Investment Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurora Investment Trust and Darden Restaurants 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 Darden Restaurants are associated (or correlated) with Aurora Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aurora Investment Trust has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and Aurora Investment go up and down completely randomly.
Pair Corralation between Darden Restaurants and Aurora Investment
Assuming the 90 days trading horizon Darden Restaurants is expected to under-perform the Aurora Investment. But the stock apears to be less risky and, when comparing its historical volatility, Darden Restaurants is 2.05 times less risky than Aurora Investment. The stock trades about -0.03 of its potential returns per unit of risk. The Aurora Investment Trust is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest 22,200 in Aurora Investment Trust on October 23, 2024 and sell it today you would earn a total of 900.00 from holding Aurora Investment Trust or generate 4.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 89.47% |
| Values | Daily Returns |
Darden Restaurants vs. Aurora Investment Trust
Performance |
| Timeline |
| Darden Restaurants |
| Aurora Investment Trust |
Darden Restaurants and Aurora Investment Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Darden Restaurants and Aurora Investment
The main advantage of trading using opposite Darden Restaurants and Aurora Investment positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Darden Restaurants position performs unexpectedly, Aurora Investment 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 Aurora Investment will offset losses from the drop in Aurora Investment's long position.The idea behind Darden Restaurants and Aurora Investment Trust 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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Check out your portfolio center.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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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