Correlation Between Vulcan Materials and Diageo Plc

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

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

Diversification Opportunities for Vulcan Materials and Diageo Plc

-0.72

Correlation Coefficient

Vulcan Materials  Diageo Plc

Pay attention - limited upside

The 3 months correlation between Vulcan and Diageo is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Vulcan Materials and Diageo plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo plc and Vulcan Materials 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 Vulcan Materials 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 Vulcan Materials i.e., Vulcan Materials and Diageo Plc go up and down completely randomly.

Pair Corralation between Vulcan Materials and Diageo Plc

Assuming the 90 days horizon Vulcan Materials is expected to generate 1.24 times more return on investment than Diageo Plc. However, Vulcan Materials is 1.24 times more volatile than Diageo plc. It trades about 0.06 of its potential returns per unit of risk. Diageo plc is currently generating about -0.04 per unit of risk. If you would invest  16,118  in Vulcan Materials on October 11, 2024 and sell it today you would earn a total of  8,682  from holding Vulcan Materials or generate 53.87% return on investment over 90 days.

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

Vulcan Materials  vs.  Diageo plc

Vulcan Materials

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Materials are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Vulcan Materials reported solid returns over the last few months and may actually be approaching a breakup point.

Diageo plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diageo plc has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Vulcan Materials and Diageo Plc

The main advantage of trading using opposite Vulcan Materials and Diageo Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vulcan Materials 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 Vulcan Materials 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.