Correlation Between Diageo PLC and SunLink Health

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

Diversification Opportunities for Diageo PLC and SunLink Health

0.19

Correlation Coefficient

Diageo PLC  SunLink Health

Average diversification

The 3 months correlation between Diageo and SunLink is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and SunLink Health Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SunLink Health Systems 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 SunLink Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SunLink Health Systems has no effect on the direction of Diageo PLC i.e., Diageo PLC and SunLink Health go up and down completely randomly.

Pair Corralation between Diageo PLC and SunLink Health

Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the SunLink Health. But the stock apears to be less risky and, when comparing its historical volatility, Diageo PLC ADR is 3.03 times less risky than SunLink Health. The stock trades about -0.08 of its potential returns per unit of risk. The SunLink Health Systems is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  79.00  in SunLink Health Systems on September 4, 2024 and sell it today you would earn a total of  4.00  from holding SunLink Health Systems or generate 5.06% return on investment over 90 days.

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

Diageo PLC ADR  vs.  SunLink Health Systems

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.

SunLink Health Systems

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SunLink Health Systems are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, SunLink Health may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Diageo PLC and SunLink Health

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

The idea behind Diageo PLC ADR and SunLink Health Systems 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..