Correlation Between Diageo Plc and CHINA EDUCATION

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

By analyzing existing cross correlation between Diageo plc and CHINA EDUCATION GROUP, you can compare the effects of market volatilities on Diageo Plc and CHINA EDUCATION 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 CHINA EDUCATION. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diageo Plc and CHINA EDUCATION.

Diversification Opportunities for Diageo Plc and CHINA EDUCATION

0.41

Correlation Coefficient

Diageo Plc  CHINA EDUCATION

Very weak diversification

The 3 months correlation between Diageo and CHINA is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Diageo plc and CHINA EDUCATION GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA EDUCATION GROUP 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 CHINA EDUCATION. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA EDUCATION GROUP has no effect on the direction of Diageo Plc i.e., Diageo Plc and CHINA EDUCATION go up and down completely randomly.

Pair Corralation between Diageo Plc and CHINA EDUCATION

Assuming the 90 days horizon Diageo plc is expected to under-perform the CHINA EDUCATION. But the stock apears to be less risky and, when comparing its historical volatility, Diageo plc is 3.35 times less risky than CHINA EDUCATION. The stock trades about -0.03 of its potential returns per unit of risk. The CHINA EDUCATION GROUP is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  35.00  in CHINA EDUCATION GROUP on October 4, 2024 and sell it today you would earn a total of  6.00  from holding CHINA EDUCATION GROUP or generate 17.14% return on investment over 90 days.

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

Diageo plc  vs.  CHINA EDUCATION GROUP

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. Despite nearly stable basic indicators, Diageo Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

CHINA EDUCATION GROUP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CHINA EDUCATION GROUP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Diageo Plc and CHINA EDUCATION

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

The idea behind Diageo plc and CHINA EDUCATION GROUP 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.