Correlation Between Diageo PLC and Rocky Brands

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

Diversification Opportunities for Diageo PLC and Rocky Brands

0.92

Correlation Coefficient

Diageo PLC  Rocky Brands

Almost no diversification

The 3 months correlation between Diageo and Rocky is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and Rocky Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rocky Brands 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 Rocky Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rocky Brands has no effect on the direction of Diageo PLC i.e., Diageo PLC and Rocky Brands go up and down completely randomly.

Pair Corralation between Diageo PLC and Rocky Brands

Considering the 90-day investment horizon Diageo PLC is expected to generate 1.44 times less return on investment than Rocky Brands. But when comparing it to its historical volatility, Diageo PLC ADR is 1.28 times less risky than Rocky Brands. It trades about 0.05 of its potential returns per unit of risk. Rocky Brands is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,251  in Rocky Brands on October 9, 2024 and sell it today you would earn a total of  39.00  from holding Rocky Brands or generate 1.73% return on investment over 90 days.

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

Diageo PLC ADR  vs.  Rocky Brands

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 latest weak performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Rocky Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rocky Brands 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 forward-looking signals remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Diageo PLC and Rocky Brands

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

The idea behind Diageo PLC ADR and Rocky Brands 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.