Correlation Between Automatic Data and Darden Restaurants

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

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

Diversification Opportunities for Automatic Data and Darden Restaurants

0.31

Correlation Coefficient

Automatic Data  Darden Restaurants

Weak diversification

The 3 months correlation between Automatic and Darden is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Automatic Data Processing and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and Automatic Data 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 Automatic Data Processing 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 Automatic Data i.e., Automatic Data and Darden Restaurants go up and down completely randomly.

Pair Corralation between Automatic Data and Darden Restaurants

Assuming the 90 days trading horizon Automatic Data is expected to generate 1.47 times less return on investment than Darden Restaurants. But when comparing it to its historical volatility, Automatic Data Processing is 1.38 times less risky than Darden Restaurants. It trades about 0.07 of its potential returns per unit of risk. Darden Restaurants is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  19,737  in Darden Restaurants on April 25, 2025 and sell it today you would earn a total of  1,281  from holding Darden Restaurants or generate 6.49% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Automatic Data Processing  vs.  Darden Restaurants

Automatic Data Processing

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Automatic Data is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Darden Restaurants

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Darden Restaurants may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Automatic Data and Darden Restaurants

The main advantage of trading using opposite Automatic Data and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Automatic Data 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 Automatic Data Processing 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.