Correlation Between Diageo PLC and 071734AP2

Can any of the company-specific risk be diversified away by investing in both Diageo PLC and 071734AP2 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 071734AP2 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 US071734AP21, you can compare the effects of market volatilities on Diageo PLC and 071734AP2 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 071734AP2. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diageo PLC and 071734AP2.

Diversification Opportunities for Diageo PLC and 071734AP2

0.1

Correlation Coefficient

Diageo PLC  071734AP2

Average diversification

The 3 months correlation between Diageo and 071734AP2 is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and US071734AP21 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US071734AP21 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 071734AP2. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US071734AP21 has no effect on the direction of Diageo PLC i.e., Diageo PLC and 071734AP2 go up and down completely randomly.

Pair Corralation between Diageo PLC and 071734AP2

Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the 071734AP2. But the stock apears to be less risky and, when comparing its historical volatility, Diageo PLC ADR is 1.21 times less risky than 071734AP2. The stock trades about -0.13 of its potential returns per unit of risk. The US071734AP21 is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  9,075  in US071734AP21 on December 25, 2024 and sell it today you would lose (547.00) from holding US071734AP21 or give up 6.03% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	94.92%
Values	Daily Returns

Diageo PLC ADR  vs.  US071734AP21

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.

US071734AP21

Risk-Adjusted Performance

Very Weak

Over the last 90 days US071734AP21 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 071734AP2 is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Diageo PLC and 071734AP2

The main advantage of trading using opposite Diageo PLC and 071734AP2 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diageo PLC position performs unexpectedly, 071734AP2 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 071734AP2 will offset losses from the drop in 071734AP2's long position.

The idea behind Diageo PLC ADR and US071734AP21 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 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.