Correlation Between Darden Restaurants and Caledonia Mining

Can any of the company-specific risk be diversified away by investing in both Darden Restaurants and Caledonia Mining 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 Caledonia Mining into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Darden Restaurants and Caledonia Mining, you can compare the effects of market volatilities on Darden Restaurants and Caledonia Mining 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 Caledonia Mining. Check out your portfolio center. Please also check ongoing floating volatility patterns of Darden Restaurants and Caledonia Mining.

Diversification Opportunities for Darden Restaurants and Caledonia Mining

-0.68

Correlation Coefficient

Darden Restaurants  Caledonia Mining

Excellent diversification

The 3 months correlation between Darden and Caledonia is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and Caledonia Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caledonia Mining 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 Caledonia Mining. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caledonia Mining has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and Caledonia Mining go up and down completely randomly.

Pair Corralation between Darden Restaurants and Caledonia Mining

Assuming the 90 days trading horizon Darden Restaurants is expected to generate 0.93 times more return on investment than Caledonia Mining. However, Darden Restaurants is 1.07 times less risky than Caledonia Mining. It trades about 0.07 of its potential returns per unit of risk. Caledonia Mining is currently generating about -0.14 per unit of risk. If you would invest  17,071  in Darden Restaurants on September 23, 2024 and sell it today you would earn a total of  1,627  from holding Darden Restaurants or generate 9.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.48%
Values	Daily Returns

Darden Restaurants  vs.  Caledonia Mining

Darden Restaurants

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Darden Restaurants may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Caledonia Mining

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Caledonia Mining has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Darden Restaurants and Caledonia Mining

The main advantage of trading using opposite Darden Restaurants and Caledonia Mining positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Darden Restaurants position performs unexpectedly, Caledonia Mining 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 Caledonia Mining will offset losses from the drop in Caledonia Mining's long position.

The idea behind Darden Restaurants and Caledonia Mining 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.

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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.