Correlation Between Diageo PLC and Fevertree Drinks

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

Diversification Opportunities for Diageo PLC and Fevertree Drinks

0.78

Correlation Coefficient

Diageo PLC  Fevertree Drinks

Poor diversification

The 3 months correlation between Diageo and Fevertree is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and Fevertree Drinks Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fevertree Drinks Plc 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 Fevertree Drinks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fevertree Drinks Plc has no effect on the direction of Diageo PLC i.e., Diageo PLC and Fevertree Drinks go up and down completely randomly.

Pair Corralation between Diageo PLC and Fevertree Drinks

Considering the 90-day investment horizon Diageo PLC ADR is expected to generate 0.93 times more return on investment than Fevertree Drinks. However, Diageo PLC ADR is 1.08 times less risky than Fevertree Drinks. It trades about -0.11 of its potential returns per unit of risk. Fevertree Drinks Plc is currently generating about -0.34 per unit of risk. If you would invest  14,034  in Diageo PLC ADR on September 28, 2024 and sell it today you would lose (1,329) from holding Diageo PLC ADR or give up 9.47% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Diageo PLC ADR  vs.  Fevertree Drinks Plc

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.

Fevertree Drinks Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fevertree Drinks Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Diageo PLC and Fevertree Drinks

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

The idea behind Diageo PLC ADR and Fevertree Drinks Plc 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 Commodity Directory module to find actively traded commodities issued by global exchanges.