Correlation Between Diageo PLC and CERo Therapeutics

Can any of the company-specific risk be diversified away by investing in both Diageo PLC and CERo Therapeutics 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 CERo Therapeutics 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 CERo Therapeutics Holdings, you can compare the effects of market volatilities on Diageo PLC and CERo Therapeutics 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 CERo Therapeutics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diageo PLC and CERo Therapeutics.

Diversification Opportunities for Diageo PLC and CERo Therapeutics

-0.58

Correlation Coefficient

Diageo PLC  CERo Therapeutics

Excellent diversification

The 3 months correlation between Diageo and CERo is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and CERo Therapeutics Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CERo Therapeutics 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 CERo Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CERo Therapeutics has no effect on the direction of Diageo PLC i.e., Diageo PLC and CERo Therapeutics go up and down completely randomly.

Pair Corralation between Diageo PLC and CERo Therapeutics

Considering the 90-day investment horizon Diageo PLC ADR is expected to generate 0.06 times more return on investment than CERo Therapeutics. However, Diageo PLC ADR is 16.82 times less risky than CERo Therapeutics. It trades about 0.14 of its potential returns per unit of risk. CERo Therapeutics Holdings is currently generating about -0.02 per unit of risk. If you would invest  12,039  in Diageo PLC ADR on September 24, 2024 and sell it today you would earn a total of  508.00  from holding Diageo PLC ADR or generate 4.22% return on investment over 90 days.

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

Diageo PLC ADR  vs.  CERo Therapeutics Holdings

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 latest weak performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

CERo Therapeutics

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CERo Therapeutics Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, CERo Therapeutics showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diageo PLC and CERo Therapeutics

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

The idea behind Diageo PLC ADR and CERo Therapeutics Holdings 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.