Correlation Between Diageo PLC and Entravision Communications

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

Diversification Opportunities for Diageo PLC and Entravision Communications

-0.79

Correlation Coefficient

Diageo PLC  Entravision Communications

Pay attention - limited upside

The 3 months correlation between Diageo and Entravision is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and Entravision Communications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entravision Communications 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 Entravision Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entravision Communications has no effect on the direction of Diageo PLC i.e., Diageo PLC and Entravision Communications go up and down completely randomly.

Pair Corralation between Diageo PLC and Entravision Communications

Considering the 90-day investment horizon Diageo PLC is expected to generate 15.49 times less return on investment than Entravision Communications. But when comparing it to its historical volatility, Diageo PLC ADR is 2.14 times less risky than Entravision Communications. It trades about 0.01 of its potential returns per unit of risk. Entravision Communications is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  206.00  in Entravision Communications on September 21, 2024 and sell it today you would earn a total of  48.00  from holding Entravision Communications or generate 23.3% return on investment over 90 days.

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

Diageo PLC ADR  vs.  Entravision Communications

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.

Entravision Communications

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Entravision Communications are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, Entravision Communications exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diageo PLC and Entravision Communications

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

The idea behind Diageo PLC ADR and Entravision Communications 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.