Correlation Between Diageo PLC and LB Foster
Can any of the company-specific risk be diversified away by investing in both Diageo PLC and LB Foster 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 LB Foster 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 LB Foster, you can compare the effects of market volatilities on Diageo PLC and LB Foster 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 LB Foster. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diageo PLC and LB Foster.
Diversification Opportunities for Diageo PLC and LB Foster
0.31 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Diageo and FSTR is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and LB Foster in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LB Foster 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 LB Foster. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LB Foster has no effect on the direction of Diageo PLC i.e., Diageo PLC and LB Foster go up and down completely randomly.
Pair Corralation between Diageo PLC and LB Foster
Considering the 90-day investment horizon Diageo PLC ADR is expected to generate 0.64 times more return on investment than LB Foster. However, Diageo PLC ADR is 1.57 times less risky than LB Foster. It trades about -0.1 of its potential returns per unit of risk. LB Foster is currently generating about -0.14 per unit of risk. If you would invest 12,350 in Diageo PLC ADR on December 18, 2024 and sell it today you would lose (1,421) from holding Diageo PLC ADR or give up 11.51% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Weak |
Accuracy | 100.0% |
Values | Daily Returns |
Diageo PLC ADR vs. LB Foster
Performance |
Timeline |
Diageo PLC ADR |
LB Foster |
Diageo PLC and LB Foster Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Diageo PLC and LB Foster
The main advantage of trading using opposite Diageo PLC and LB Foster positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diageo PLC position performs unexpectedly, LB Foster 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 LB Foster will offset losses from the drop in LB Foster's long position.Diageo PLC vs. Brown Forman | Diageo PLC vs. MGP Ingredients | Diageo PLC vs. Brown Forman | Diageo PLC vs. Constellation Brands Class |
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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.
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