Correlation Between General Mills and Darden Restaurants

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

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

Diversification Opportunities for General Mills and Darden Restaurants

-0.28

Correlation Coefficient

General Mills  Darden Restaurants

Very good diversification

The 3 months correlation between General and Darden is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding General Mills and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and General Mills 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 General Mills 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 General Mills i.e., General Mills and Darden Restaurants go up and down completely randomly.

Pair Corralation between General Mills and Darden Restaurants

Considering the 90-day investment horizon General Mills is expected to under-perform the Darden Restaurants. But the stock apears to be less risky and, when comparing its historical volatility, General Mills is 1.02 times less risky than Darden Restaurants. The stock trades about -0.01 of its potential returns per unit of risk. The Darden Restaurants is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  15,668  in Darden Restaurants on January 24, 2024 and sell it today you would lose (213.00) from holding Darden Restaurants or give up 1.36% of portfolio value over 90 days.

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

General Mills  vs.  Darden Restaurants

General Mills

Risk-Adjusted Performance

12 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in General Mills are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile forward indicators, General Mills unveiled 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 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 General Mills and Darden Restaurants

The main advantage of trading using opposite General Mills and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if General Mills 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 General Mills 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.