Correlation Between Diageo PLC and GigCapital5

Can any of the company-specific risk be diversified away by investing in both Diageo PLC and GigCapital5 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 GigCapital5 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 GigCapital5, you can compare the effects of market volatilities on Diageo PLC and GigCapital5 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 GigCapital5. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diageo PLC and GigCapital5.

Diversification Opportunities for Diageo PLC and GigCapital5

0.0

Correlation Coefficient

Diageo PLC  GigCapital5

Pay attention - limited upside

The 3 months correlation between Diageo and GigCapital5 is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and GigCapital5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GigCapital5 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 GigCapital5. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GigCapital5 has no effect on the direction of Diageo PLC i.e., Diageo PLC and GigCapital5 go up and down completely randomly.

Pair Corralation between Diageo PLC and GigCapital5

Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the GigCapital5. But the stock apears to be less risky and, when comparing its historical volatility, Diageo PLC ADR is 25.5 times less risky than GigCapital5. The stock trades about -0.03 of its potential returns per unit of risk. The GigCapital5 is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2.82  in GigCapital5 on October 26, 2024 and sell it today you would lose (1.67) from holding GigCapital5 or give up 59.22% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	14.37%
Values	Daily Returns

Diageo PLC ADR  vs.  GigCapital5

Diageo PLC ADR

Risk-Adjusted Performance

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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.

GigCapital5

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GigCapital5 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, GigCapital5 is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Diageo PLC and GigCapital5

The main advantage of trading using opposite Diageo PLC and GigCapital5 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diageo PLC position performs unexpectedly, GigCapital5 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 GigCapital5 will offset losses from the drop in GigCapital5's long position.

The idea behind Diageo PLC ADR and GigCapital5 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 Transaction History module to view history of all your transactions and understand their impact on performance.