Correlation Between Starbucks and Darden Restaurants
Can any of the company-specific risk be diversified away by investing in both Starbucks 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 Starbucks and Darden Restaurants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Starbucks and Darden Restaurants, you can compare the effects of market volatilities on Starbucks 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 Starbucks with a short position of Darden Restaurants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Starbucks and Darden Restaurants.
Diversification Opportunities for Starbucks and Darden Restaurants
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Starbucks and Darden is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Starbucks and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and Starbucks 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 Starbucks 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 Starbucks i.e., Starbucks and Darden Restaurants go up and down completely randomly.
Pair Corralation between Starbucks and Darden Restaurants
Given the investment horizon of 90 days Starbucks is expected to under-perform the Darden Restaurants. In addition to that, Starbucks is 1.16 times more volatile than Darden Restaurants. It trades about -0.04 of its total potential returns per unit of risk. Darden Restaurants is currently generating about 0.07 per unit of volatility. If you would invest 13,948 in Darden Restaurants on January 19, 2024 and sell it today you would earn a total of 1,303 from holding Darden Restaurants or generate 9.34% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Starbucks vs. Darden Restaurants
Performance |
| Timeline |
| Starbucks |
| Darden Restaurants |
Starbucks and Darden Restaurants Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Starbucks and Darden Restaurants
The main advantage of trading using opposite Starbucks and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Starbucks 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 Starbucks 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.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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.
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