Correlation Between Take Two and Diageo PLC

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

By analyzing existing cross correlation between Take Two Interactive Software and Diageo PLC, you can compare the effects of market volatilities on Take Two and Diageo PLC 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 Take Two with a short position of Diageo PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Take Two and Diageo PLC.

Diversification Opportunities for Take Two and Diageo PLC

-0.34

Correlation Coefficient

Take Two  Diageo PLC

Very good diversification

The 3 months correlation between Take and Diageo is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Take Two Interactive Software and Diageo PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC and Take Two 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 Take Two Interactive Software are associated (or correlated) with Diageo PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo PLC has no effect on the direction of Take Two i.e., Take Two and Diageo PLC go up and down completely randomly.

Pair Corralation between Take Two and Diageo PLC

Assuming the 90 days trading horizon Take Two Interactive Software is expected to generate 0.98 times more return on investment than Diageo PLC. However, Take Two Interactive Software is 1.02 times less risky than Diageo PLC. It trades about 0.17 of its potential returns per unit of risk. Diageo PLC is currently generating about -0.06 per unit of risk. If you would invest  16,133  in Take Two Interactive Software on October 25, 2024 and sell it today you would earn a total of  2,523  from holding Take Two Interactive Software or generate 15.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Take Two Interactive Software  vs.  Diageo PLC

Take Two Interactive

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Take Two Interactive Software are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Take Two unveiled solid returns over the last few months and may actually be approaching a breakup point.

Diageo PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diageo PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Diageo PLC is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Take Two and Diageo PLC

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

The idea behind Take Two Interactive Software and Diageo PLC 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.