Correlation Between Diageo Plc and Hollywood Bowl

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

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

Diversification Opportunities for Diageo Plc and Hollywood Bowl

-0.23

Correlation Coefficient

Diageo Plc  Hollywood Bowl

Very good diversification

The 3 months correlation between Diageo and Hollywood is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Diageo plc and Hollywood Bowl Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hollywood Bowl 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 Hollywood Bowl. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hollywood Bowl Group has no effect on the direction of Diageo Plc i.e., Diageo Plc and Hollywood Bowl go up and down completely randomly.

Pair Corralation between Diageo Plc and Hollywood Bowl

Assuming the 90 days trading horizon Diageo Plc is expected to generate 6.39 times less return on investment than Hollywood Bowl. In addition to that, Diageo Plc is 1.09 times more volatile than Hollywood Bowl Group. It trades about 0.02 of its total potential returns per unit of risk. Hollywood Bowl Group is currently generating about 0.11 per unit of volatility. If you would invest  364.00  in Hollywood Bowl Group on September 14, 2024 and sell it today you would earn a total of  42.00  from holding Hollywood Bowl Group or generate 11.54% return on investment over 90 days.

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

Diageo plc  vs.  Hollywood Bowl Group

Diageo plc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Diageo plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward indicators, Diageo Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Hollywood Bowl Group

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hollywood Bowl Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hollywood Bowl may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Diageo Plc and Hollywood Bowl

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

The idea behind Diageo plc and Hollywood Bowl 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.