Correlation Between British American and Darden Restaurants
Can any of the company-specific risk be diversified away by investing in both British American 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 British American and Darden Restaurants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between British American Tobacco and Darden Restaurants, you can compare the effects of market volatilities on British American 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 British American with a short position of Darden Restaurants. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and Darden Restaurants.
Diversification Opportunities for British American and Darden Restaurants
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between British and Darden is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and British American 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 British American Tobacco 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 British American i.e., British American and Darden Restaurants go up and down completely randomly.
Pair Corralation between British American and Darden Restaurants
Assuming the 90 days trading horizon British American Tobacco is expected to generate 0.78 times more return on investment than Darden Restaurants. However, British American Tobacco is 1.29 times less risky than Darden Restaurants. It trades about 0.12 of its potential returns per unit of risk. Darden Restaurants is currently generating about -0.02 per unit of risk. If you would invest 3,502 in British American Tobacco on October 26, 2024 and sell it today you would earn a total of 59.00 from holding British American Tobacco or generate 1.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
British American Tobacco vs. Darden Restaurants
Performance |
| Timeline |
| British American Tobacco |
| Darden Restaurants |
British American and Darden Restaurants Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with British American and Darden Restaurants
The main advantage of trading using opposite British American and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American 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.| British American vs. Japan Tobacco | British American vs. American Public Education | British American vs. Scandinavian Tobacco Group | British American vs. EEDUCATION ALBERT AB |
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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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.
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