Correlation Between Darden Restaurants and Royal Caribbean

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

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

Diversification Opportunities for Darden Restaurants and Royal Caribbean

0.63

Correlation Coefficient

Darden Restaurants  Royal Caribbean

Poor diversification

The 3 months correlation between Darden and Royal is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and Royal Caribbean Cruises in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Caribbean Cruises 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 Royal Caribbean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Caribbean Cruises has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and Royal Caribbean go up and down completely randomly.

Pair Corralation between Darden Restaurants and Royal Caribbean

Considering the 90-day investment horizon Darden Restaurants is expected to generate 4.06 times less return on investment than Royal Caribbean. But when comparing it to its historical volatility, Darden Restaurants is 1.25 times less risky than Royal Caribbean. It trades about 0.11 of its potential returns per unit of risk. Royal Caribbean Cruises is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  17,736  in Royal Caribbean Cruises on August 31, 2024 and sell it today you would earn a total of  6,426  from holding Royal Caribbean Cruises or generate 36.23% return on investment over 90 days.

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

Darden Restaurants  vs.  Royal Caribbean Cruises

Darden Restaurants

Risk-Adjusted Performance

8 of 100

OK

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

Royal Caribbean Cruises

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Royal Caribbean Cruises are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. Despite quite conflicting fundamental indicators, Royal Caribbean disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Darden Restaurants and Royal Caribbean

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

The idea behind Darden Restaurants and Royal Caribbean Cruises 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.

Check out your portfolio center.

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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.