Correlation Between BP Plc and Darden Restaurants
Can any of the company-specific risk be diversified away by investing in both BP Plc 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 BP Plc and Darden Restaurants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BP plc and Darden Restaurants, you can compare the effects of market volatilities on BP Plc 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 BP Plc with a short position of Darden Restaurants. Check out your portfolio center. Please also check ongoing floating volatility patterns of BP Plc and Darden Restaurants.
Diversification Opportunities for BP Plc and Darden Restaurants
-0.48 | Correlation Coefficient |
Very good diversification
The 3 months correlation between BP-A and Darden is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding BP plc and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and BP Plc 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 BP plc 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 BP Plc i.e., BP Plc and Darden Restaurants go up and down completely randomly.
Pair Corralation between BP Plc and Darden Restaurants
Assuming the 90 days trading horizon BP plc is expected to under-perform the Darden Restaurants. But the stock apears to be less risky and, when comparing its historical volatility, BP plc is 1.0 times less risky than Darden Restaurants. The stock trades about -0.01 of its potential returns per unit of risk. The Darden Restaurants is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 15,575 in Darden Restaurants on August 31, 2024 and sell it today you would earn a total of 2,038 from holding Darden Restaurants or generate 13.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 98.64% |
| Values | Daily Returns |
BP plc vs. Darden Restaurants
Performance |
| Timeline |
| BP plc |
| Darden Restaurants |
BP Plc and Darden Restaurants Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BP Plc and Darden Restaurants
The main advantage of trading using opposite BP Plc and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BP Plc 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.| BP Plc vs. Eastinco Mining Exploration | BP Plc vs. International Biotechnology Trust | BP Plc vs. Vulcan Materials Co | BP Plc vs. Morgan Advanced Materials |
| Darden Restaurants vs. Neometals | Darden Restaurants vs. Coor Service Management | Darden Restaurants vs. Aeorema Communications Plc | Darden Restaurants vs. JLEN Environmental Assets |
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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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