Correlation Between Diageo Plc and AVITA Medical

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

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

Diversification Opportunities for Diageo Plc and AVITA Medical

-0.46

Correlation Coefficient

Diageo Plc  AVITA Medical

Very good diversification

The 3 months correlation between Diageo and AVITA is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Diageo plc and AVITA Medical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AVITA Medical 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 AVITA Medical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AVITA Medical has no effect on the direction of Diageo Plc i.e., Diageo Plc and AVITA Medical go up and down completely randomly.

Pair Corralation between Diageo Plc and AVITA Medical

Assuming the 90 days trading horizon Diageo Plc is expected to generate 1.51 times less return on investment than AVITA Medical. But when comparing it to its historical volatility, Diageo plc is 2.52 times less risky than AVITA Medical. It trades about 0.12 of its potential returns per unit of risk. AVITA Medical is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  244.00  in AVITA Medical on October 10, 2024 and sell it today you would earn a total of  10.00  from holding AVITA Medical or generate 4.1% return on investment over 90 days.

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

Diageo plc  vs.  AVITA Medical

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 comparatively stable forward indicators, Diageo Plc is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

AVITA Medical

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AVITA Medical are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain forward-looking signals, AVITA Medical reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diageo Plc and AVITA Medical

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

The idea behind Diageo plc and AVITA Medical 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.