Correlation Between Diageo PLC and Sunny Optical

Can any of the company-specific risk be diversified away by investing in both Diageo PLC and Sunny Optical 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 Sunny Optical into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Diageo PLC and Sunny Optical Technology, you can compare the effects of market volatilities on Diageo PLC and Sunny Optical 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 Sunny Optical. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diageo PLC and Sunny Optical.

Diversification Opportunities for Diageo PLC and Sunny Optical

-0.8

Correlation Coefficient

Diageo PLC  Sunny Optical

Pay attention - limited upside

The 3 months correlation between Diageo and Sunny is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC and Sunny Optical Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunny Optical Technology 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 are associated (or correlated) with Sunny Optical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunny Optical Technology has no effect on the direction of Diageo PLC i.e., Diageo PLC and Sunny Optical go up and down completely randomly.

Pair Corralation between Diageo PLC and Sunny Optical

Assuming the 90 days trading horizon Diageo PLC is expected to under-perform the Sunny Optical. But the stock apears to be less risky and, when comparing its historical volatility, Diageo PLC is 1.98 times less risky than Sunny Optical. The stock trades about -0.05 of its potential returns per unit of risk. The Sunny Optical Technology is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  6,475  in Sunny Optical Technology on December 4, 2024 and sell it today you would earn a total of  1,940  from holding Sunny Optical Technology or generate 29.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

Diageo PLC  vs.  Sunny Optical Technology

Diageo PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diageo PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Diageo PLC is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Sunny Optical Technology

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sunny Optical Technology are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Sunny Optical unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diageo PLC and Sunny Optical

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

The idea behind Diageo PLC and Sunny Optical Technology 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.

Check out your portfolio center.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.