Correlation Between Build A and Darden Restaurants

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

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

Diversification Opportunities for Build A and Darden Restaurants

-0.6

Correlation Coefficient

Build A  Darden Restaurants

Excellent diversification

The 3 months correlation between Build and Darden is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding Build A Bear Workshop and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and Build A 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 Build A Bear Workshop 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 Build A i.e., Build A and Darden Restaurants go up and down completely randomly.

Pair Corralation between Build A and Darden Restaurants

Considering the 90-day investment horizon Build A Bear Workshop is expected to generate 2.38 times more return on investment than Darden Restaurants. However, Build A is 2.38 times more volatile than Darden Restaurants. It trades about 0.08 of its potential returns per unit of risk. Darden Restaurants is currently generating about -0.16 per unit of risk. If you would invest  2,370  in Build A Bear Workshop on March 2, 2024 and sell it today you would earn a total of  337.00  from holding Build A Bear Workshop or generate 14.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

Build A Bear Workshop  vs.  Darden Restaurants

Build A Bear

Risk-Adjusted Performance

6 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Build A Bear Workshop are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain fundamental drivers, Build A showed solid returns over the last few months and may actually be approaching a breakup point.

Darden Restaurants

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Darden Restaurants has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in July 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with Build A and Darden Restaurants

The main advantage of trading using opposite Build A and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Build A 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 Build A Bear Workshop 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.