Correlation Between Darden Restaurants and Hyatt Hotels

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

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

Diversification Opportunities for Darden Restaurants and Hyatt Hotels

0.21

Correlation Coefficient

Darden Restaurants  Hyatt Hotels

Modest diversification

The 3 months correlation between Darden and Hyatt is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and Hyatt Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hyatt Hotels 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 Hyatt Hotels. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hyatt Hotels has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and Hyatt Hotels go up and down completely randomly.

Pair Corralation between Darden Restaurants and Hyatt Hotels

Considering the 90-day investment horizon Darden Restaurants is expected to generate 0.99 times more return on investment than Hyatt Hotels. However, Darden Restaurants is 1.01 times less risky than Hyatt Hotels. It trades about -0.11 of its potential returns per unit of risk. Hyatt Hotels is currently generating about -0.14 per unit of risk. If you would invest  16,135  in Darden Restaurants on January 25, 2024 and sell it today you would lose (486.00) from holding Darden Restaurants or give up 3.01% of portfolio value over 90 days.

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

Darden Restaurants  vs.  Hyatt Hotels

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.

Hyatt Hotels

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hyatt Hotels are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical indicators, Hyatt Hotels demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Darden Restaurants and Hyatt Hotels

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

The idea behind Darden Restaurants and Hyatt Hotels 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.