Correlation Between American Airlines and Darden Restaurants
Can any of the company-specific risk be diversified away by investing in both American Airlines 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 American Airlines and Darden Restaurants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between American Airlines Group and Darden Restaurants, you can compare the effects of market volatilities on American Airlines 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 American Airlines with a short position of Darden Restaurants. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Airlines and Darden Restaurants.
Diversification Opportunities for American Airlines and Darden Restaurants
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between American and Darden is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding American Airlines Group and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and American Airlines 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 American Airlines Group 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 American Airlines i.e., American Airlines and Darden Restaurants go up and down completely randomly.
Pair Corralation between American Airlines and Darden Restaurants
Assuming the 90 days horizon American Airlines Group is expected to generate 1.95 times more return on investment than Darden Restaurants. However, American Airlines is 1.95 times more volatile than Darden Restaurants. It trades about 0.25 of its potential returns per unit of risk. Darden Restaurants is currently generating about 0.35 per unit of risk. If you would invest 1,224 in American Airlines Group on September 2, 2024 and sell it today you would earn a total of 202.00 from holding American Airlines Group or generate 16.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
American Airlines Group vs. Darden Restaurants
Performance |
| Timeline |
| American Airlines |
| Darden Restaurants |
American Airlines and Darden Restaurants Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with American Airlines and Darden Restaurants
The main advantage of trading using opposite American Airlines and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Airlines 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.| American Airlines vs. Superior Plus Corp | American Airlines vs. NMI Holdings | American Airlines vs. Origin Agritech | American Airlines vs. SIVERS SEMICONDUCTORS AB |
| 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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