Correlation Between Darden Restaurants and Alsea SAB

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

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

Diversification Opportunities for Darden Restaurants and Alsea SAB

0.15

Correlation Coefficient

Darden Restaurants  Alsea SAB

Average diversification

The 3 months correlation between Darden and Alsea is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Darden Restaurants and Alsea SAB de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alsea SAB de 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 Alsea SAB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alsea SAB de has no effect on the direction of Darden Restaurants i.e., Darden Restaurants and Alsea SAB go up and down completely randomly.

Pair Corralation between Darden Restaurants and Alsea SAB

Considering the 90-day investment horizon Darden Restaurants is expected to generate 0.45 times more return on investment than Alsea SAB. However, Darden Restaurants is 2.21 times less risky than Alsea SAB. It trades about 0.11 of its potential returns per unit of risk. Alsea SAB de is currently generating about 0.01 per unit of risk. If you would invest  18,612  in Darden Restaurants on December 27, 2024 and sell it today you would earn a total of  2,187  from holding Darden Restaurants or generate 11.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Darden Restaurants  vs.  Alsea SAB de

Darden Restaurants

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Darden Restaurants are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Darden Restaurants may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Alsea SAB de

Risk-Adjusted Performance

Very Weak

Over the last 90 days Alsea SAB de has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Alsea SAB is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Darden Restaurants and Alsea SAB

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

The idea behind Darden Restaurants and Alsea SAB de 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.