Correlation Between Induction Healthcare and Darden Restaurants

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

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

Diversification Opportunities for Induction Healthcare and Darden Restaurants

0.46

Correlation Coefficient

Induction Healthcare  Darden Restaurants

Very weak diversification

The 3 months correlation between Induction and Darden is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Induction Healthcare Group and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and Induction Healthcare 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 Induction Healthcare Group 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 Induction Healthcare i.e., Induction Healthcare and Darden Restaurants go up and down completely randomly.

Pair Corralation between Induction Healthcare and Darden Restaurants

Assuming the 90 days trading horizon Induction Healthcare is expected to generate 1.03 times less return on investment than Darden Restaurants. In addition to that, Induction Healthcare is 1.85 times more volatile than Darden Restaurants. It trades about 0.04 of its total potential returns per unit of risk. Darden Restaurants is currently generating about 0.08 per unit of volatility. If you would invest  15,669  in Darden Restaurants on September 5, 2024 and sell it today you would earn a total of  1,423  from holding Darden Restaurants or generate 9.08% return on investment over 90 days.

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

Induction Healthcare Group  vs.  Darden Restaurants

Induction Healthcare

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Induction Healthcare Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Induction Healthcare may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Darden Restaurants

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 6 (%) 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 Induction Healthcare and Darden Restaurants

The main advantage of trading using opposite Induction Healthcare and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Induction Healthcare 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 Induction Healthcare Group 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..