Correlation Between Wendys and Darden Restaurants
Can any of the company-specific risk be diversified away by investing in both Wendys 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 Wendys and Darden Restaurants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between The Wendys Co and Darden Restaurants, you can compare the effects of market volatilities on Wendys 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 Wendys with a short position of Darden Restaurants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Wendys and Darden Restaurants.
Diversification Opportunities for Wendys and Darden Restaurants
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Wendys and Darden is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding The Wendys Co and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and Wendys 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 The Wendys Co 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 Wendys i.e., Wendys and Darden Restaurants go up and down completely randomly.
Pair Corralation between Wendys and Darden Restaurants
Considering the 90-day investment horizon The Wendys Co is expected to under-perform the Darden Restaurants. In addition to that, Wendys is 1.33 times more volatile than Darden Restaurants. It trades about -0.1 of its total potential returns per unit of risk. Darden Restaurants is currently generating about 0.04 per unit of volatility. If you would invest 16,236 in Darden Restaurants on August 24, 2024 and sell it today you would earn a total of 220.00 from holding Darden Restaurants or generate 1.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
The Wendys Co vs. Darden Restaurants
Performance |
| Timeline |
| The Wendys |
| Darden Restaurants |
Wendys and Darden Restaurants Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Wendys and Darden Restaurants
The main advantage of trading using opposite Wendys and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Wendys 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.The idea behind The Wendys Co and Darden Restaurants pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| Darden Restaurants vs. Dine Brands Global | Darden Restaurants vs. Bloomin Brands | Darden Restaurants vs. BJs Restaurants | Darden Restaurants vs. The Cheesecake Factory |
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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.
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