Correlation Between Diageo PLC and Grocery Outlet

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

Diversification Opportunities for Diageo PLC and Grocery Outlet

-0.52

Correlation Coefficient

Diageo PLC  Grocery Outlet

Excellent diversification

The 3 months correlation between Diageo and Grocery is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and Grocery Outlet Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grocery Outlet Holding 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 Grocery Outlet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grocery Outlet Holding has no effect on the direction of Diageo PLC i.e., Diageo PLC and Grocery Outlet go up and down completely randomly.

Pair Corralation between Diageo PLC and Grocery Outlet

Considering the 90-day investment horizon Diageo PLC ADR is expected to generate 0.55 times more return on investment than Grocery Outlet. However, Diageo PLC ADR is 1.82 times less risky than Grocery Outlet. It trades about -0.04 of its potential returns per unit of risk. Grocery Outlet Holding is currently generating about -0.03 per unit of risk. If you would invest  16,891  in Diageo PLC ADR on September 20, 2024 and sell it today you would lose (4,167) from holding Diageo PLC ADR or give up 24.67% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Diageo PLC ADR  vs.  Grocery Outlet Holding

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.

Grocery Outlet Holding

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Grocery Outlet Holding are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Grocery Outlet may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Diageo PLC and Grocery Outlet

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

The idea behind Diageo PLC ADR and Grocery Outlet Holding 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .