Correlation Between Autohome ADR and Darden Restaurants

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

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

Diversification Opportunities for Autohome ADR and Darden Restaurants

-0.64

Correlation Coefficient

Autohome ADR  Darden Restaurants

Excellent diversification

The 3 months correlation between Autohome and Darden is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Autohome ADR and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and Autohome ADR 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 Autohome ADR 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 Autohome ADR i.e., Autohome ADR and Darden Restaurants go up and down completely randomly.

Pair Corralation between Autohome ADR and Darden Restaurants

Assuming the 90 days trading horizon Autohome ADR is expected to under-perform the Darden Restaurants. In addition to that, Autohome ADR is 1.16 times more volatile than Darden Restaurants. It trades about -0.03 of its total potential returns per unit of risk. Darden Restaurants is currently generating about 0.15 per unit of volatility. If you would invest  14,820  in Darden Restaurants on September 26, 2024 and sell it today you would earn a total of  3,180  from holding Darden Restaurants or generate 21.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Autohome ADR  vs.  Darden Restaurants

Autohome ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Autohome ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, Autohome ADR is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Darden Restaurants

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Darden Restaurants unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Autohome ADR and Darden Restaurants

The main advantage of trading using opposite Autohome ADR and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Autohome ADR 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 Autohome ADR 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.