Correlation Between HYDROFARM HLD and Darden Restaurants
Can any of the company-specific risk be diversified away by investing in both HYDROFARM HLD 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 HYDROFARM HLD and Darden Restaurants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between HYDROFARM HLD GRP and Darden Restaurants, you can compare the effects of market volatilities on HYDROFARM HLD 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 HYDROFARM HLD with a short position of Darden Restaurants. Check out your portfolio center. Please also check ongoing floating volatility patterns of HYDROFARM HLD and Darden Restaurants.
Diversification Opportunities for HYDROFARM HLD and Darden Restaurants
0.34 | Correlation Coefficient |
Weak diversification
The 3 months correlation between HYDROFARM and Darden is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding HYDROFARM HLD GRP and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and HYDROFARM HLD 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 HYDROFARM HLD GRP 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 HYDROFARM HLD i.e., HYDROFARM HLD and Darden Restaurants go up and down completely randomly.
Pair Corralation between HYDROFARM HLD and Darden Restaurants
Assuming the 90 days trading horizon HYDROFARM HLD GRP is expected to generate 3.15 times more return on investment than Darden Restaurants. However, HYDROFARM HLD is 3.15 times more volatile than Darden Restaurants. It trades about 0.23 of its potential returns per unit of risk. Darden Restaurants is currently generating about 0.16 per unit of risk. If you would invest 40.00 in HYDROFARM HLD GRP on September 2, 2024 and sell it today you would earn a total of 37.00 from holding HYDROFARM HLD GRP or generate 92.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
HYDROFARM HLD GRP vs. Darden Restaurants
Performance |
| Timeline |
| HYDROFARM HLD GRP |
| Darden Restaurants |
HYDROFARM HLD and Darden Restaurants Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with HYDROFARM HLD and Darden Restaurants
The main advantage of trading using opposite HYDROFARM HLD and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if HYDROFARM HLD 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 HYDROFARM HLD GRP 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.| Darden Restaurants vs. Apple Inc | Darden Restaurants vs. Apple Inc | Darden Restaurants vs. Apple Inc | Darden Restaurants vs. Apple Inc |
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 Stocks Directory module to find actively traded stocks across global markets.
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