Correlation Between MACYS and Diageo PLC

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

By analyzing existing cross correlation between MACYS RETAIL HLDGS and Diageo PLC ADR, you can compare the effects of market volatilities on MACYS 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 MACYS with a short position of Diageo PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of MACYS and Diageo PLC.

Diversification Opportunities for MACYS and Diageo PLC

-0.03

Correlation Coefficient

MACYS  Diageo PLC

Good diversification

The 3 months correlation between MACYS and Diageo is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding MACYS RETAIL HLDGS and Diageo PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC ADR and MACYS 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 MACYS RETAIL HLDGS 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 ADR has no effect on the direction of MACYS i.e., MACYS and Diageo PLC go up and down completely randomly.

Pair Corralation between MACYS and Diageo PLC

Assuming the 90 days trading horizon MACYS RETAIL HLDGS is expected to under-perform the Diageo PLC. But the bond apears to be less risky and, when comparing its historical volatility, MACYS RETAIL HLDGS is 1.54 times less risky than Diageo PLC. The bond trades about -0.17 of its potential returns per unit of risk. The Diageo PLC ADR is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  11,865  in Diageo PLC ADR on September 28, 2024 and sell it today you would earn a total of  905.00  from holding Diageo PLC ADR or generate 7.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.48%
Values	Daily Returns

MACYS RETAIL HLDGS  vs.  Diageo PLC ADR

MACYS RETAIL HLDGS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MACYS RETAIL HLDGS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, MACYS is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Diageo PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diageo PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Pair Trading with MACYS and Diageo PLC

The main advantage of trading using opposite MACYS and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MACYS 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 MACYS RETAIL HLDGS and Diageo PLC ADR 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.