Correlation Between OCCIDENTAL and Diageo PLC

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

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

Diversification Opportunities for OCCIDENTAL and Diageo PLC

0.84

Correlation Coefficient

OCCIDENTAL  Diageo PLC

Very poor diversification

The 3 months correlation between OCCIDENTAL and Diageo is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding OCCIDENTAL PETE P 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 OCCIDENTAL 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 OCCIDENTAL PETE P 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 OCCIDENTAL i.e., OCCIDENTAL and Diageo PLC go up and down completely randomly.

Pair Corralation between OCCIDENTAL and Diageo PLC

Assuming the 90 days trading horizon OCCIDENTAL is expected to generate 1.74 times less return on investment than Diageo PLC. But when comparing it to its historical volatility, OCCIDENTAL PETE P is 1.06 times less risky than Diageo PLC. It trades about 0.24 of its potential returns per unit of risk. Diageo PLC ADR is currently generating about 0.39 of returns per unit of risk over similar time horizon. If you would invest  11,816  in Diageo PLC ADR on September 16, 2024 and sell it today you would earn a total of  1,329  from holding Diageo PLC ADR or generate 11.25% return on investment over 90 days.

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

OCCIDENTAL PETE P  vs.  Diageo PLC ADR

OCCIDENTAL PETE P

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days OCCIDENTAL PETE P has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, OCCIDENTAL is not utilizing all of its potentials. The recent 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 very healthy technical and fundamental indicators, Diageo PLC is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with OCCIDENTAL and Diageo PLC

The main advantage of trading using opposite OCCIDENTAL and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if OCCIDENTAL 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 OCCIDENTAL PETE P 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.