Correlation Between Diageo PLC and Sphere Entertainment

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

Diversification Opportunities for Diageo PLC and Sphere Entertainment

0.58

Correlation Coefficient

Diageo PLC  Sphere Entertainment

Very weak diversification

The 3 months correlation between Diageo and Sphere is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and Sphere Entertainment Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sphere Entertainment 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 Sphere Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sphere Entertainment has no effect on the direction of Diageo PLC i.e., Diageo PLC and Sphere Entertainment go up and down completely randomly.

Pair Corralation between Diageo PLC and Sphere Entertainment

Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the Sphere Entertainment. But the stock apears to be less risky and, when comparing its historical volatility, Diageo PLC ADR is 2.15 times less risky than Sphere Entertainment. The stock trades about -0.06 of its potential returns per unit of risk. The Sphere Entertainment Co is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,672  in Sphere Entertainment Co on September 5, 2024 and sell it today you would earn a total of  383.00  from holding Sphere Entertainment Co or generate 10.43% return on investment over 90 days.

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

Diageo PLC ADR  vs.  Sphere Entertainment Co

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.

Sphere Entertainment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sphere Entertainment Co has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical indicators, Sphere Entertainment is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Diageo PLC and Sphere Entertainment

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

The idea behind Diageo PLC ADR and Sphere Entertainment Co 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.