Correlation Between New Residential and Darden Restaurants
Can any of the company-specific risk be diversified away by investing in both New Residential 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 New Residential and Darden Restaurants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between New Residential Investment and Darden Restaurants, you can compare the effects of market volatilities on New Residential 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 New Residential with a short position of Darden Restaurants. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Residential and Darden Restaurants.
Diversification Opportunities for New Residential and Darden Restaurants
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between New and Darden is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding New Residential Investment and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and New Residential 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 New Residential Investment 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 New Residential i.e., New Residential and Darden Restaurants go up and down completely randomly.
Pair Corralation between New Residential and Darden Restaurants
Assuming the 90 days trading horizon New Residential Investment is expected to under-perform the Darden Restaurants. But the stock apears to be less risky and, when comparing its historical volatility, New Residential Investment is 3.16 times less risky than Darden Restaurants. The stock trades about -0.08 of its potential returns per unit of risk. The Darden Restaurants is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 17,716 in Darden Restaurants on September 24, 2024 and sell it today you would earn a total of 982.00 from holding Darden Restaurants or generate 5.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.24% |
| Values | Daily Returns |
New Residential Investment vs. Darden Restaurants
Performance |
| Timeline |
| New Residential Inve |
| Darden Restaurants |
New Residential and Darden Restaurants Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with New Residential and Darden Restaurants
The main advantage of trading using opposite New Residential and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Residential 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.| New Residential vs. Uniper SE | New Residential vs. Mulberry Group PLC | New Residential vs. London Security Plc | New Residential vs. Triad Group PLC |
| Darden Restaurants vs. Uniper SE | Darden Restaurants vs. Mulberry Group PLC | Darden Restaurants vs. London Security Plc | Darden Restaurants vs. Triad Group PLC |
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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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