Correlation Between Diageo PLC and 538034AN9

Can any of the company-specific risk be diversified away by investing in both Diageo PLC and 538034AN9 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 538034AN9 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 Live Nation Entertainment, you can compare the effects of market volatilities on Diageo PLC and 538034AN9 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 538034AN9. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diageo PLC and 538034AN9.

Diversification Opportunities for Diageo PLC and 538034AN9

0.07

Correlation Coefficient

Diageo PLC  538034AN9

Significant diversification

The 3 months correlation between Diageo and 538034AN9 is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and Live Nation Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Live Nation 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 538034AN9. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Live Nation Entertainment has no effect on the direction of Diageo PLC i.e., Diageo PLC and 538034AN9 go up and down completely randomly.

Pair Corralation between Diageo PLC and 538034AN9

Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the 538034AN9. In addition to that, Diageo PLC is 4.04 times more volatile than Live Nation Entertainment. It trades about -0.24 of its total potential returns per unit of risk. Live Nation Entertainment is currently generating about -0.28 per unit of volatility. If you would invest  10,020  in Live Nation Entertainment on December 2, 2024 and sell it today you would lose (188.00) from holding Live Nation Entertainment or give up 1.88% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	80.95%
Values	Daily Returns

Diageo PLC ADR  vs.  Live Nation Entertainment

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 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.

Live Nation Entertainment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Live Nation Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, 538034AN9 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 538034AN9

The main advantage of trading using opposite Diageo PLC and 538034AN9 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diageo PLC position performs unexpectedly, 538034AN9 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 538034AN9 will offset losses from the drop in 538034AN9's long position.

The idea behind Diageo PLC ADR and Live Nation Entertainment 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.