Correlation Between Diageo PLC and Pernod Ricard

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

Diversification Opportunities for Diageo PLC and Pernod Ricard

0.78

Correlation Coefficient

Diageo PLC  Pernod Ricard

Poor diversification

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

Pair Corralation between Diageo PLC and Pernod Ricard

Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the Pernod Ricard. But the stock apears to be less risky and, when comparing its historical volatility, Diageo PLC ADR is 1.41 times less risky than Pernod Ricard. The stock trades about -0.14 of its potential returns per unit of risk. The Pernod Ricard SA is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  11,148  in Pernod Ricard SA on December 28, 2024 and sell it today you would lose (1,347) from holding Pernod Ricard SA or give up 12.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

Diageo PLC ADR  vs.  Pernod Ricard SA

Diageo PLC ADR

Risk-Adjusted Performance

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 weak performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pernod Ricard SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pernod Ricard SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Diageo PLC and Pernod Ricard

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

The idea behind Diageo PLC ADR and Pernod Ricard SA 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.