Correlation Between Baozun and Darden Restaurants

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

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

Diversification Opportunities for Baozun and Darden Restaurants

0.46

Correlation Coefficient

Baozun  Darden Restaurants

Very weak diversification

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

Pair Corralation between Baozun and Darden Restaurants

Given the investment horizon of 90 days Baozun Inc is expected to under-perform the Darden Restaurants. In addition to that, Baozun is 3.23 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 0.04 per unit of volatility. If you would invest  12,266  in Darden Restaurants on January 24, 2024 and sell it today you would earn a total of  3,189  from holding Darden Restaurants or generate 26.0% return on investment over 90 days.

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

Baozun Inc  vs.  Darden Restaurants

Baozun Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Baozun Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Baozun is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

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 fairly strong basic indicators, Darden Restaurants is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Baozun and Darden Restaurants

The main advantage of trading using opposite Baozun and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Baozun 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 Baozun Inc 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.