Correlation Between Diageo Plc and Treasury Wine

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

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

Diversification Opportunities for Diageo Plc and Treasury Wine

0.63

Correlation Coefficient

Diageo Plc  Treasury Wine

Poor diversification

The 3 months correlation between Diageo and Treasury is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Diageo plc and Treasury Wine Estates in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Treasury Wine Estates 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 Treasury Wine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Treasury Wine Estates has no effect on the direction of Diageo Plc i.e., Diageo Plc and Treasury Wine go up and down completely randomly.

Pair Corralation between Diageo Plc and Treasury Wine

Assuming the 90 days trading horizon Diageo plc is expected to under-perform the Treasury Wine. In addition to that, Diageo Plc is 1.18 times more volatile than Treasury Wine Estates. It trades about -0.14 of its total potential returns per unit of risk. Treasury Wine Estates is currently generating about -0.1 per unit of volatility. If you would invest  662.00  in Treasury Wine Estates on December 30, 2024 and sell it today you would lose (77.00) from holding Treasury Wine Estates or give up 11.63% of portfolio value over 90 days.

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

Diageo plc  vs.  Treasury Wine Estates

Diageo plc

Risk-Adjusted Performance

Very Weak

Over the last 90 days Diageo plc 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 forward indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Treasury Wine Estates

Risk-Adjusted Performance

Very Weak

Over the last 90 days Treasury Wine Estates has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Diageo Plc and Treasury Wine

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

The idea behind Diageo plc and Treasury Wine Estates 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.