Correlation Between Diageo PLC and Tianjin Capital

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

Diversification Opportunities for Diageo PLC and Tianjin Capital

-0.92

Correlation Coefficient

Diageo PLC  Tianjin Capital

Pay attention - limited upside

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

Pair Corralation between Diageo PLC and Tianjin Capital

Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the Tianjin Capital. But the stock apears to be less risky and, when comparing its historical volatility, Diageo PLC ADR is 1.01 times less risky than Tianjin Capital. The stock trades about -0.04 of its potential returns per unit of risk. The Tianjin Capital Environmental is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  34.00  in Tianjin Capital Environmental on September 12, 2024 and sell it today you would earn a total of  4.00  from holding Tianjin Capital Environmental or generate 11.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	96.88%
Values	Daily Returns

Diageo PLC ADR  vs.  Tianjin Capital Environmental

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.

Tianjin Capital Envi

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tianjin Capital Environmental are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward indicators, Tianjin Capital may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Diageo PLC and Tianjin Capital

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

The idea behind Diageo PLC ADR and Tianjin Capital Environmental 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.