Correlation Between Darden Restaurants and Dominos Pizza

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

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

Diversification Opportunities for Darden Restaurants and Dominos Pizza

0.49

Correlation Coefficient

Darden Restaurants  Dominos Pizza

Very weak diversification

The 12 months correlation between Darden and Dominos is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and Dominos Pizza in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dominos Pizza 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 Dominos Pizza. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dominos Pizza has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and Dominos Pizza go up and down completely randomly.

Pair Corralation between Darden Restaurants and Dominos Pizza

Considering the 90-day investment horizon Darden Restaurants is expected to generate 1.4 times less return on investment than Dominos Pizza. But when comparing it to its historical volatility, Darden Restaurants is 1.25 times less risky than Dominos Pizza. It trades about 0.04 of its potential returns per unit of risk. Dominos Pizza is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  34,396  in Dominos Pizza on January 24, 2024 and sell it today you would earn a total of  12,732  from holding Dominos Pizza or generate 37.02% return on investment over 90 days.

Time Period	12 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Darden Restaurants  vs.  Dominos Pizza

Darden Restaurants

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Dominos Pizza

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dominos Pizza are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Dominos Pizza may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Darden Restaurants and Dominos Pizza

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

The idea behind Darden Restaurants and Dominos Pizza 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.