Correlation Between New Residential and Darden Restaurants

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

By analyzing existing cross correlation between New Residential Investment and Darden Restaurants, you can compare the effects of market volatilities on New Residential 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 New Residential with a short position of Darden Restaurants. Check out your portfolio center. Please also check ongoing floating volatility patterns of New Residential and Darden Restaurants.

Diversification Opportunities for New Residential and Darden Restaurants

0.5

Correlation Coefficient

New Residential  Darden Restaurants

Very weak diversification

The 3 months correlation between New and Darden is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding New Residential Investment and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and New Residential 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 New Residential Investment 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 New Residential i.e., New Residential and Darden Restaurants go up and down completely randomly.

Pair Corralation between New Residential and Darden Restaurants

Assuming the 90 days trading horizon New Residential is expected to generate 3.91 times less return on investment than Darden Restaurants. But when comparing it to its historical volatility, New Residential Investment is 1.61 times less risky than Darden Restaurants. It trades about 0.04 of its potential returns per unit of risk. Darden Restaurants is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  14,842  in Darden Restaurants on September 25, 2024 and sell it today you would earn a total of  3,508  from holding Darden Restaurants or generate 23.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.88%
Values	Daily Returns

New Residential Investment  vs.  Darden Restaurants

New Residential Inve

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days New Residential Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, New Residential is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

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.

Pair Trading with New Residential and Darden Restaurants

The main advantage of trading using opposite New Residential and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Residential 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 New Residential Investment 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.

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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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.