Correlation Between Darden Restaurants and MGIC INVESTMENT

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

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

Diversification Opportunities for Darden Restaurants and MGIC INVESTMENT

0.69

Correlation Coefficient

Darden Restaurants  MGIC INVESTMENT

Poor diversification

The 3 months correlation between Darden and MGIC is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and MGIC INVESTMENT in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGIC INVESTMENT 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 MGIC INVESTMENT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MGIC INVESTMENT has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and MGIC INVESTMENT go up and down completely randomly.

Pair Corralation between Darden Restaurants and MGIC INVESTMENT

Assuming the 90 days trading horizon Darden Restaurants is expected to generate 1.19 times more return on investment than MGIC INVESTMENT. However, Darden Restaurants is 1.19 times more volatile than MGIC INVESTMENT. It trades about 0.17 of its potential returns per unit of risk. MGIC INVESTMENT is currently generating about 0.12 per unit of risk. If you would invest  14,102  in Darden Restaurants on August 31, 2024 and sell it today you would earn a total of  2,433  from holding Darden Restaurants or generate 17.25% return on investment over 90 days.

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

Darden Restaurants  vs.  MGIC INVESTMENT

Darden Restaurants

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Darden Restaurants unveiled solid returns over the last few months and may actually be approaching a breakup point.

MGIC INVESTMENT

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MGIC INVESTMENT are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, MGIC INVESTMENT may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Darden Restaurants and MGIC INVESTMENT

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

The idea behind Darden Restaurants and MGIC INVESTMENT 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.