Correlation Between Callaway Golf and Darden Restaurants

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

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

Diversification Opportunities for Callaway Golf and Darden Restaurants

-0.55

Correlation Coefficient

Callaway Golf  Darden Restaurants

Excellent diversification

The 3 months correlation between Callaway and Darden is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Callaway Golf and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and Callaway Golf 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 Callaway Golf 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 Callaway Golf i.e., Callaway Golf and Darden Restaurants go up and down completely randomly.

Pair Corralation between Callaway Golf and Darden Restaurants

Given the investment horizon of 90 days Callaway Golf is expected to generate 1.95 times more return on investment than Darden Restaurants. However, Callaway Golf is 1.95 times more volatile than Darden Restaurants. It trades about 0.1 of its potential returns per unit of risk. Darden Restaurants is currently generating about -0.03 per unit of risk. If you would invest  1,398  in Callaway Golf on January 25, 2024 and sell it today you would earn a total of  219.00  from holding Callaway Golf or generate 15.67% return on investment over 90 days.

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

Callaway Golf  vs.  Darden Restaurants

Callaway Golf

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Callaway Golf are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Callaway Golf reported 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 current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Callaway Golf and Darden Restaurants

The main advantage of trading using opposite Callaway Golf and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Callaway Golf 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 Callaway Golf 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.