Correlation Between Darden Restaurants and American Airlines
Can any of the company-specific risk be diversified away by investing in both Darden Restaurants and American Airlines 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 Darden Restaurants and American Airlines into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Darden Restaurants and American Airlines Group, you can compare the effects of market volatilities on Darden Restaurants and American Airlines 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 Darden Restaurants with a short position of American Airlines. Check out your portfolio center. Please also check ongoing floating volatility patterns of Darden Restaurants and American Airlines.
Diversification Opportunities for Darden Restaurants and American Airlines
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Darden and American is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and American Airlines Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Airlines and Darden Restaurants 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 Darden Restaurants are associated (or correlated) with American Airlines. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Airlines has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and American Airlines go up and down completely randomly.
Pair Corralation between Darden Restaurants and American Airlines
Assuming the 90 days trading horizon Darden Restaurants is expected to generate 0.53 times more return on investment than American Airlines. However, Darden Restaurants is 1.9 times less risky than American Airlines. It trades about 0.04 of its potential returns per unit of risk. American Airlines Group is currently generating about 0.01 per unit of risk. If you would invest 14,260 in Darden Restaurants on August 31, 2024 and sell it today you would earn a total of 2,275 from holding Darden Restaurants or generate 15.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.74% |
| Values | Daily Returns |
Darden Restaurants vs. American Airlines Group
Performance |
| Timeline |
| Darden Restaurants |
| American Airlines |
Darden Restaurants and American Airlines Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Darden Restaurants and American Airlines
The main advantage of trading using opposite Darden Restaurants and American Airlines positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Darden Restaurants position performs unexpectedly, American Airlines 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 American Airlines will offset losses from the drop in American Airlines' long position.| Darden Restaurants vs. Apple Inc | Darden Restaurants vs. Apple Inc | Darden Restaurants vs. Apple Inc | Darden Restaurants vs. Apple Inc |
| American Airlines vs. Southwest Airlines Co | American Airlines vs. Superior Plus Corp | American Airlines vs. NMI Holdings | American Airlines vs. Origin Agritech |
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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..
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