Correlation Between Hanesbrands and Darden Restaurants

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Can any of the company-specific risk be diversified away by investing in both Hanesbrands 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 Hanesbrands and Darden Restaurants into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hanesbrands and Darden Restaurants, you can compare the effects of market volatilities on Hanesbrands 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 Hanesbrands with a short position of Darden Restaurants. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hanesbrands and Darden Restaurants.

Diversification Opportunities for Hanesbrands and Darden Restaurants

0.83
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Hanesbrands and Darden is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Hanesbrands and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and Hanesbrands 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 Hanesbrands 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 Hanesbrands i.e., Hanesbrands and Darden Restaurants go up and down completely randomly.

Pair Corralation between Hanesbrands and Darden Restaurants

Considering the 90-day investment horizon Hanesbrands is expected to under-perform the Darden Restaurants. In addition to that, Hanesbrands is 2.26 times more volatile than Darden Restaurants. It trades about -0.03 of its total potential returns per unit of risk. Darden Restaurants is currently generating about 0.05 per unit of volatility. If you would invest  11,904  in Darden Restaurants on December 30, 2023 and sell it today you would earn a total of  4,811  from holding Darden Restaurants or generate 40.41% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Hanesbrands  vs.  Darden Restaurants

 Performance 
       Timeline  
Hanesbrands 

Risk-Adjusted Performance

11 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Hanesbrands are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak fundamental drivers, Hanesbrands demonstrated solid returns over the last few months and may actually be approaching a breakup point.
Darden Restaurants 

Risk-Adjusted Performance

4 of 100

 
Low
 
High
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Darden Restaurants is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Hanesbrands and Darden Restaurants Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Hanesbrands and Darden Restaurants

The main advantage of trading using opposite Hanesbrands and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hanesbrands 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 Hanesbrands 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.

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