Correlation Between AVITA Medical and Diageo Plc

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

By analyzing existing cross correlation between AVITA Medical and Diageo plc, you can compare the effects of market volatilities on AVITA Medical 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 AVITA Medical with a short position of Diageo Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of AVITA Medical and Diageo Plc.

Diversification Opportunities for AVITA Medical and Diageo Plc

-0.46

Correlation Coefficient

AVITA Medical  Diageo Plc

Very good diversification

The 3 months correlation between AVITA and Diageo is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding AVITA Medical and Diageo plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo plc and AVITA Medical 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 AVITA Medical 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 AVITA Medical i.e., AVITA Medical and Diageo Plc go up and down completely randomly.

Pair Corralation between AVITA Medical and Diageo Plc

Assuming the 90 days trading horizon AVITA Medical is expected to generate 2.62 times more return on investment than Diageo Plc. However, AVITA Medical is 2.62 times more volatile than Diageo plc. It trades about 0.18 of its potential returns per unit of risk. Diageo plc is currently generating about 0.0 per unit of risk. If you would invest  178.00  in AVITA Medical on October 10, 2024 and sell it today you would earn a total of  76.00  from holding AVITA Medical or generate 42.7% return on investment over 90 days.

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

AVITA Medical  vs.  Diageo plc

AVITA Medical

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AVITA Medical are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain forward-looking signals, AVITA Medical reported 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 comparatively stable forward indicators, Diageo Plc is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with AVITA Medical and Diageo Plc

The main advantage of trading using opposite AVITA Medical and Diageo Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AVITA Medical 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 AVITA Medical 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.