Correlation Between Bloomin Brands and Darden Restaurants

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

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

Diversification Opportunities for Bloomin Brands and Darden Restaurants

0.64

Correlation Coefficient

Bloomin Brands  Darden Restaurants

Poor diversification

The 3 months correlation between Bloomin and Darden is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Bloomin Brands and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and Bloomin Brands 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 Bloomin Brands 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 Bloomin Brands i.e., Bloomin Brands and Darden Restaurants go up and down completely randomly.

Pair Corralation between Bloomin Brands and Darden Restaurants

Given the investment horizon of 90 days Bloomin Brands is expected to generate 0.97 times more return on investment than Darden Restaurants. However, Bloomin Brands is 1.03 times less risky than Darden Restaurants. It trades about -0.15 of its potential returns per unit of risk. Darden Restaurants is currently generating about -0.32 per unit of risk. If you would invest  2,870  in Bloomin Brands on January 20, 2024 and sell it today you would lose (167.00) from holding Bloomin Brands or give up 5.82% of portfolio value over 90 days.

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

Bloomin Brands  vs.  Darden Restaurants

Bloomin Brands

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bloomin Brands are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, Bloomin Brands is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

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 Bloomin Brands and Darden Restaurants

The main advantage of trading using opposite Bloomin Brands and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bloomin Brands 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 Bloomin Brands 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.