Correlation Between Diageo Plc and Broadwind

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

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

Diversification Opportunities for Diageo Plc and Broadwind

0.47

Correlation Coefficient

Diageo Plc  Broadwind

Very weak diversification

The 3 months correlation between Diageo and Broadwind is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Diageo plc and Broadwind in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadwind 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 Broadwind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Broadwind has no effect on the direction of Diageo Plc i.e., Diageo Plc and Broadwind go up and down completely randomly.

Pair Corralation between Diageo Plc and Broadwind

Assuming the 90 days trading horizon Diageo plc is expected to under-perform the Broadwind. But the stock apears to be less risky and, when comparing its historical volatility, Diageo plc is 2.47 times less risky than Broadwind. The stock trades about -0.02 of its potential returns per unit of risk. The Broadwind is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  158.00  in Broadwind on October 26, 2024 and sell it today you would earn a total of  13.00  from holding Broadwind or generate 8.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	97.5%
Values	Daily Returns

Diageo plc  vs.  Broadwind

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 latest unfluctuating performance, the Stock's forward indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Broadwind

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Broadwind has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Broadwind is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Diageo Plc and Broadwind

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

The idea behind Diageo plc and Broadwind 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.