Correlation Between Diageo PLC and Air Transport

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Can any of the company-specific risk be diversified away by investing in both Diageo PLC and Air Transport 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 Diageo PLC and Air Transport into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Diageo PLC ADR and Air Transport Services, you can compare the effects of market volatilities on Diageo PLC and Air Transport 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 Diageo PLC with a short position of Air Transport. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diageo PLC and Air Transport.

Diversification Opportunities for Diageo PLC and Air Transport

-0.82
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Diageo and Air is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and Air Transport Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Air Transport Services and Diageo PLC 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 Diageo PLC ADR are associated (or correlated) with Air Transport. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Air Transport Services has no effect on the direction of Diageo PLC i.e., Diageo PLC and Air Transport go up and down completely randomly.

Pair Corralation between Diageo PLC and Air Transport

Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the Air Transport. In addition to that, Diageo PLC is 14.85 times more volatile than Air Transport Services. It trades about -0.14 of its total potential returns per unit of risk. Air Transport Services is currently generating about 0.25 per unit of volatility. If you would invest  2,192  in Air Transport Services on December 27, 2024 and sell it today you would earn a total of  42.00  from holding Air Transport Services or generate 1.92% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Diageo PLC ADR  vs.  Air Transport Services

 Performance 
       Timeline  
Diageo PLC ADR 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
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 weak performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.
Air Transport Services 

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Air Transport Services are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Air Transport is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Diageo PLC and Air Transport Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Diageo PLC and Air Transport

The main advantage of trading using opposite Diageo PLC and Air Transport positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diageo PLC position performs unexpectedly, Air Transport 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 Air Transport will offset losses from the drop in Air Transport's long position.
The idea behind Diageo PLC ADR and Air Transport Services 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 Transaction History module to view history of all your transactions and understand their impact on performance.

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