Correlation Between Treasury Wine and Diageo Plc

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

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

Diversification Opportunities for Treasury Wine and Diageo Plc

0.63

Correlation Coefficient

Treasury Wine  Diageo Plc

Poor diversification

The 3 months correlation between Treasury and Diageo is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Treasury Wine Estates and Diageo plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo plc and Treasury Wine 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 Treasury Wine Estates 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 Treasury Wine i.e., Treasury Wine and Diageo Plc go up and down completely randomly.

Pair Corralation between Treasury Wine and Diageo Plc

Assuming the 90 days horizon Treasury Wine Estates is expected to generate 0.85 times more return on investment than Diageo Plc. However, Treasury Wine Estates is 1.18 times less risky than Diageo Plc. It trades about -0.1 of its potential returns per unit of risk. Diageo plc is currently generating about -0.14 per unit of risk. 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

Treasury Wine Estates  vs.  Diageo plc

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.

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.

Pair Trading with Treasury Wine and Diageo Plc

The main advantage of trading using opposite Treasury Wine and Diageo Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Treasury Wine 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 Treasury Wine Estates 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.