Correlation Between Diageo PLC and SALESFORCECOM

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

Diversification Opportunities for Diageo PLC and SALESFORCECOM

-0.32

Correlation Coefficient

Diageo PLC  SALESFORCECOM

Very good diversification

The 3 months correlation between Diageo and SALESFORCECOM is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and SALESFORCECOM INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SALESFORCECOM INC 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 SALESFORCECOM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SALESFORCECOM INC has no effect on the direction of Diageo PLC i.e., Diageo PLC and SALESFORCECOM go up and down completely randomly.

Pair Corralation between Diageo PLC and SALESFORCECOM

Considering the 90-day investment horizon Diageo PLC is expected to generate 8.28 times less return on investment than SALESFORCECOM. But when comparing it to its historical volatility, Diageo PLC ADR is 1.57 times less risky than SALESFORCECOM. It trades about 0.02 of its potential returns per unit of risk. SALESFORCECOM INC is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  6,270  in SALESFORCECOM INC on October 22, 2024 and sell it today you would earn a total of  494.00  from holding SALESFORCECOM INC or generate 7.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.0%
Values	Daily Returns

Diageo PLC ADR  vs.  SALESFORCECOM INC

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.

SALESFORCECOM INC

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SALESFORCECOM INC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, SALESFORCECOM may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Diageo PLC and SALESFORCECOM

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

The idea behind Diageo PLC ADR and SALESFORCECOM INC 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.