Correlation Between Hilton Worldwide and Darden Restaurants

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

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

Diversification Opportunities for Hilton Worldwide and Darden Restaurants

0.21

Correlation Coefficient

Hilton Worldwide  Darden Restaurants

Modest diversification

The 3 months correlation between Hilton and Darden is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Hilton Worldwide Holdings and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants and Hilton Worldwide 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 Hilton Worldwide Holdings 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 Hilton Worldwide i.e., Hilton Worldwide and Darden Restaurants go up and down completely randomly.

Pair Corralation between Hilton Worldwide and Darden Restaurants

Considering the 90-day investment horizon Hilton Worldwide Holdings is expected to under-perform the Darden Restaurants. But the stock apears to be less risky and, when comparing its historical volatility, Hilton Worldwide Holdings is 1.08 times less risky than Darden Restaurants. The stock trades about -0.27 of its potential returns per unit of risk. The Darden Restaurants is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  16,135  in Darden Restaurants on January 25, 2024 and sell it today you would lose (545.00) from holding Darden Restaurants or give up 3.38% of portfolio value over 90 days.

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

Hilton Worldwide Holdings  vs.  Darden Restaurants

Hilton Worldwide Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hilton Worldwide Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable essential indicators, Hilton Worldwide is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private 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 Hilton Worldwide and Darden Restaurants

The main advantage of trading using opposite Hilton Worldwide and Darden Restaurants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hilton Worldwide 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 Hilton Worldwide Holdings 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.