Correlation Between Air Products and Diageo PLC

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

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

Diversification Opportunities for Air Products and Diageo PLC

-0.44

Correlation Coefficient

Air Products  Diageo PLC

Very good diversification

The 3 months correlation between Air and Diageo is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Air Products and and Diageo PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC ADR and Air Products 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 Air Products and 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 ADR has no effect on the direction of Air Products i.e., Air Products and Diageo PLC go up and down completely randomly.

Pair Corralation between Air Products and Diageo PLC

Considering the 90-day investment horizon Air Products and is expected to generate 1.15 times more return on investment than Diageo PLC. However, Air Products is 1.15 times more volatile than Diageo PLC ADR. It trades about 0.07 of its potential returns per unit of risk. Diageo PLC ADR is currently generating about 0.01 per unit of risk. If you would invest  25,971  in Air Products and on September 25, 2024 and sell it today you would earn a total of  3,528  from holding Air Products and or generate 13.58% return on investment over 90 days.

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

Air Products and  vs.  Diageo PLC ADR

Air Products

Risk-Adjusted Performance

0 of 100

Very Weak

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

Diageo PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diageo PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Diageo PLC is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Air Products and Diageo PLC

The main advantage of trading using opposite Air Products and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Air Products 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 Air Products and and Diageo PLC ADR 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.