Correlation Between Darden Restaurants and American Eagle
Can any of the company-specific risk be diversified away by investing in both Darden Restaurants and American Eagle 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 Eagle 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 Eagle Outfitters, you can compare the effects of market volatilities on Darden Restaurants and American Eagle 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 Eagle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Darden Restaurants and American Eagle.
Diversification Opportunities for Darden Restaurants and American Eagle
-0.73 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Darden and American is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and American Eagle Outfitters in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Eagle Outfitters 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 Eagle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Eagle Outfitters has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and American Eagle go up and down completely randomly.
Pair Corralation between Darden Restaurants and American Eagle
Assuming the 90 days trading horizon Darden Restaurants is expected to generate 1.59 times more return on investment than American Eagle. However, Darden Restaurants is 1.59 times more volatile than American Eagle Outfitters. It trades about 0.24 of its potential returns per unit of risk. American Eagle Outfitters is currently generating about -0.08 per unit of risk. If you would invest 15,224 in Darden Restaurants on October 20, 2024 and sell it today you would earn a total of 2,326 from holding Darden Restaurants or generate 15.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Darden Restaurants vs. American Eagle Outfitters
Performance |
| Timeline |
| Darden Restaurants |
| American Eagle Outfitters |
Darden Restaurants and American Eagle Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Darden Restaurants and American Eagle
The main advantage of trading using opposite Darden Restaurants and American Eagle positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Darden Restaurants position performs unexpectedly, American Eagle 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 Eagle will offset losses from the drop in American Eagle's long position.| Darden Restaurants vs. THORNEY TECHS LTD | Darden Restaurants vs. G8 EDUCATION | Darden Restaurants vs. STRAYER EDUCATION | Darden Restaurants vs. Playtech plc |
| American Eagle vs. Darden Restaurants | American Eagle vs. MCEWEN MINING INC | American Eagle vs. De Grey Mining | American Eagle vs. Lamar Advertising |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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