Correlation Between Starbucks and Darden Restaurants

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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

0.75
  Correlation Coefficient

Poor diversification

The 3 months correlation between Starbucks and Darden is 0.75. 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 generate 1.2 times more return on investment than Darden Restaurants. However, Starbucks is 1.2 times more volatile than Darden Restaurants. It trades about 0.43 of its potential returns per unit of risk. Darden Restaurants is currently generating about 0.1 per unit of risk. If you would invest  8,993  in Starbucks on September 6, 2022 and sell it today you would earn a total of  1,362  from holding Starbucks or generate 15.15% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Starbucks  vs.  Darden Restaurants

 Performance (%) 
       Timeline  
Starbucks 
Starbucks Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Starbucks are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Starbucks showed solid returns over the last few months and may actually be approaching a breakup point.

Starbucks Price Channel

Darden Restaurants 
Darden Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Darden Restaurants reported solid returns over the last few months and may actually be approaching a breakup point.

Darden Price Channel

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.
Starbucks vs. Bank Of America
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Starbucks vs. Microsoft
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.
Darden Restaurants vs. Bank Of America
Darden Restaurants vs. 3M Company
Darden Restaurants vs. Merck Company
Darden Restaurants vs. Microsoft
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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.

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