Correlation Between Darden Restaurants and Heineken

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

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

Diversification Opportunities for Darden Restaurants and Heineken

-0.81

Correlation Coefficient

Darden Restaurants  Heineken

Pay attention - limited upside

The 3 months correlation between Darden and Heineken is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and Heineken NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heineken NV 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 Heineken. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heineken NV has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and Heineken go up and down completely randomly.

Pair Corralation between Darden Restaurants and Heineken

Assuming the 90 days trading horizon Darden Restaurants is expected to generate 1.69 times more return on investment than Heineken. However, Darden Restaurants is 1.69 times more volatile than Heineken NV. It trades about 0.11 of its potential returns per unit of risk. Heineken NV is currently generating about -0.15 per unit of risk. If you would invest  15,057  in Darden Restaurants on October 24, 2024 and sell it today you would earn a total of  2,738  from holding Darden Restaurants or generate 18.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Darden Restaurants  vs.  Heineken NV

Darden Restaurants

Risk-Adjusted Performance

11 of 100

OK

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. In spite of comparatively unsteady basic indicators, Darden Restaurants unveiled solid returns over the last few months and may actually be approaching a breakup point.

Heineken NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heineken NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's forward-looking signals remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Darden Restaurants and Heineken

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

The idea behind Darden Restaurants and Heineken NV 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.