Correlation Between Darden Restaurants and HSBC SP

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Can any of the company-specific risk be diversified away by investing in both Darden Restaurants and HSBC SP 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 HSBC SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Darden Restaurants and HSBC SP 500, you can compare the effects of market volatilities on Darden Restaurants and HSBC SP 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 HSBC SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Darden Restaurants and HSBC SP.

Diversification Opportunities for Darden Restaurants and HSBC SP

0.78
  Correlation Coefficient

Poor diversification

The 3 months correlation between Darden and HSBC is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and HSBC SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HSBC SP 500 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 HSBC SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HSBC SP 500 has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and HSBC SP go up and down completely randomly.

Pair Corralation between Darden Restaurants and HSBC SP

Assuming the 90 days trading horizon Darden Restaurants is expected to generate 1.28 times less return on investment than HSBC SP. In addition to that, Darden Restaurants is 1.87 times more volatile than HSBC SP 500. It trades about 0.05 of its total potential returns per unit of risk. HSBC SP 500 is currently generating about 0.13 per unit of volatility. If you would invest  3,442  in HSBC SP 500 on October 5, 2024 and sell it today you would earn a total of  2,061  from holding HSBC SP 500 or generate 59.88% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Darden Restaurants  vs.  HSBC SP 500

 Performance 
       Timeline  
Darden Restaurants 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Good
Over the last 90 days Darden Restaurants has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively fragile basic indicators, Darden Restaurants unveiled solid returns over the last few months and may actually be approaching a breakup point.
HSBC SP 500 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Solid
Over the last 90 days HSBC SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather uncertain basic indicators, HSBC SP may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Darden Restaurants and HSBC SP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Darden Restaurants and HSBC SP

The main advantage of trading using opposite Darden Restaurants and HSBC SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Darden Restaurants position performs unexpectedly, HSBC SP 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 HSBC SP will offset losses from the drop in HSBC SP's long position.
The idea behind Darden Restaurants and HSBC SP 500 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.

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