Correlation Between Diageo PLC and Hyundai

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

Diversification Opportunities for Diageo PLC and Hyundai

-0.04

Correlation Coefficient

Diageo PLC  Hyundai

Good diversification

The 3 months correlation between Diageo and Hyundai is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and Hyundai Capital America in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hyundai Capital America 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 Hyundai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hyundai Capital America has no effect on the direction of Diageo PLC i.e., Diageo PLC and Hyundai go up and down completely randomly.

Pair Corralation between Diageo PLC and Hyundai

Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the Hyundai. In addition to that, Diageo PLC is 12.32 times more volatile than Hyundai Capital America. It trades about -0.17 of its total potential returns per unit of risk. Hyundai Capital America is currently generating about -0.02 per unit of volatility. If you would invest  10,037  in Hyundai Capital America on October 24, 2024 and sell it today you would lose (3.00) from holding Hyundai Capital America or give up 0.03% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	47.37%
Values	Daily Returns

Diageo PLC ADR  vs.  Hyundai Capital America

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 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 February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Hyundai Capital America

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Diageo PLC and Hyundai

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

The idea behind Diageo PLC ADR and Hyundai Capital America 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.