Correlation Between Diageo PLC and Vodafone Group

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

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

Diversification Opportunities for Diageo PLC and Vodafone Group

0.42

Correlation Coefficient

Diageo PLC  Vodafone Group

Very weak diversification

The 3 months correlation between Diageo and Vodafone is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC and Vodafone Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vodafone Group PLC 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 Vodafone Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vodafone Group PLC has no effect on the direction of Diageo PLC i.e., Diageo PLC and Vodafone Group go up and down completely randomly.

Pair Corralation between Diageo PLC and Vodafone Group

Assuming the 90 days trading horizon Diageo PLC is expected to under-perform the Vodafone Group. But the stock apears to be less risky and, when comparing its historical volatility, Diageo PLC is 1.16 times less risky than Vodafone Group. The stock trades about -0.04 of its potential returns per unit of risk. The Vodafone Group PLC is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  7,874  in Vodafone Group PLC on October 1, 2024 and sell it today you would lose (1,140) from holding Vodafone Group PLC or give up 14.48% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Diageo PLC  vs.  Vodafone Group PLC

Diageo PLC

Risk-Adjusted Performance

0 of 100

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.

Vodafone Group PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vodafone Group PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Diageo PLC and Vodafone Group

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

The idea behind Diageo PLC and Vodafone Group PLC 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.