Correlation Between Park Hotels and Diageo Plc

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

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

Diversification Opportunities for Park Hotels and Diageo Plc

-0.56

Correlation Coefficient

Park Hotels  Diageo Plc

Excellent diversification

The 3 months correlation between Park and Diageo is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Park Hotels Resorts and Diageo plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo plc and Park Hotels 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 Park Hotels Resorts are associated (or correlated) with Diageo Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo plc has no effect on the direction of Park Hotels i.e., Park Hotels and Diageo Plc go up and down completely randomly.

Pair Corralation between Park Hotels and Diageo Plc

Assuming the 90 days trading horizon Park Hotels is expected to generate 1.63 times less return on investment than Diageo Plc. In addition to that, Park Hotels is 1.75 times more volatile than Diageo plc. It trades about 0.08 of its total potential returns per unit of risk. Diageo plc is currently generating about 0.22 per unit of volatility. If you would invest  2,833  in Diageo plc on September 22, 2024 and sell it today you would earn a total of  205.00  from holding Diageo plc or generate 7.24% return on investment over 90 days.

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

Park Hotels Resorts  vs.  Diageo plc

Park Hotels Resorts

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Park Hotels Resorts are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Park Hotels is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

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 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.

Pair Trading with Park Hotels and Diageo Plc

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

The idea behind Park Hotels Resorts and Diageo plc 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.