Correlation Between Darden Restaurants and Dave

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

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

Diversification Opportunities for Darden Restaurants and Dave

0.1

Correlation Coefficient

Darden Restaurants  Dave

Average diversification

The 3 months correlation between Darden and Dave is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and Dave Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dave Inc 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 Dave. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dave Inc has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and Dave go up and down completely randomly.

Pair Corralation between Darden Restaurants and Dave

Considering the 90-day investment horizon Darden Restaurants is expected to under-perform the Dave. But the stock apears to be less risky and, when comparing its historical volatility, Darden Restaurants is 2.06 times less risky than Dave. The stock trades about -0.32 of its potential returns per unit of risk. The Dave Inc is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  3,503  in Dave Inc on January 20, 2024 and sell it today you would lose (92.00) from holding Dave Inc or give up 2.63% of portfolio value over 90 days.

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

Darden Restaurants  vs.  Dave Inc

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.

Dave Inc

Risk-Adjusted Performance

13 of 100

Good

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

Pair Trading with Darden Restaurants and Dave

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

The idea behind Darden Restaurants and Dave Inc 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.