Correlation Between Darden Restaurants and Merck
Can any of the company-specific risk be diversified away by investing in both Darden Restaurants and Merck 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 Merck into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Darden Restaurants and Merck Company, you can compare the effects of market volatilities on Darden Restaurants and Merck 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 Merck. Check out your portfolio center. Please also check ongoing floating volatility patterns of Darden Restaurants and Merck.
Diversification Opportunities for Darden Restaurants and Merck
-0.79 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Darden and Merck is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and Merck Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merck Company 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 Merck. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merck Company has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and Merck go up and down completely randomly.
Pair Corralation between Darden Restaurants and Merck
Assuming the 90 days trading horizon Darden Restaurants is expected to generate 0.85 times more return on investment than Merck. However, Darden Restaurants is 1.18 times less risky than Merck. It trades about 0.05 of its potential returns per unit of risk. Merck Company is currently generating about 0.01 per unit of risk. If you would invest 14,354 in Darden Restaurants on September 2, 2024 and sell it today you would earn a total of 2,146 from holding Darden Restaurants or generate 14.95% 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. Merck Company
Performance |
| Timeline |
| Darden Restaurants |
| Merck Company |
Darden Restaurants and Merck Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Darden Restaurants and Merck
The main advantage of trading using opposite Darden Restaurants and Merck positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Darden Restaurants position performs unexpectedly, Merck 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 Merck will offset losses from the drop in Merck's long position.| Darden Restaurants vs. Apple Inc | Darden Restaurants vs. Apple Inc | Darden Restaurants vs. Apple Inc | Darden Restaurants vs. Apple Inc |
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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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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