Correlation Between Diageo PLC and Funko

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

Diversification Opportunities for Diageo PLC and Funko

0.68

Correlation Coefficient

Diageo PLC  Funko

Poor diversification

The 3 months correlation between Diageo and Funko is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and Funko Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Funko Inc 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 Funko. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Funko Inc has no effect on the direction of Diageo PLC i.e., Diageo PLC and Funko go up and down completely randomly.

Pair Corralation between Diageo PLC and Funko

Considering the 90-day investment horizon Diageo PLC is expected to generate 2.0 times less return on investment than Funko. But when comparing it to its historical volatility, Diageo PLC ADR is 1.5 times less risky than Funko. It trades about 0.17 of its potential returns per unit of risk. Funko Inc is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,031  in Funko Inc on September 19, 2024 and sell it today you would earn a total of  114.00  from holding Funko Inc or generate 11.06% return on investment over 90 days.

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

Diageo PLC ADR  vs.  Funko Inc

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.

Funko Inc

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Funko Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward-looking signals, Funko is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Diageo PLC and Funko

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

The idea behind Diageo PLC ADR and Funko Inc 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.