Correlation Between Diageo PLC and First Republic

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

Diversification Opportunities for Diageo PLC and First Republic

0.62

Correlation Coefficient

Diageo PLC  First Republic

Poor diversification

The 3 months correlation between Diageo and First is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and First Republic Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Republic Bank 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 First Republic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Republic Bank has no effect on the direction of Diageo PLC i.e., Diageo PLC and First Republic go up and down completely randomly.

Pair Corralation between Diageo PLC and First Republic

If you would invest  12,039  in Diageo PLC ADR on September 25, 2024 and sell it today you would earn a total of  530.00  from holding Diageo PLC ADR or generate 4.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	5.0%
Values	Daily Returns

Diageo PLC ADR  vs.  First Republic Bank

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.

First Republic Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Republic Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward indicators, First Republic is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Diageo PLC and First Republic

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

The idea behind Diageo PLC ADR and First Republic Bank 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.

Check out your portfolio center.

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.