Correlation Between TRAVEL + and Diageo Plc

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

By analyzing existing cross correlation between TRAVEL LEISURE DL 01 and Diageo plc, you can compare the effects of market volatilities on TRAVEL + 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 TRAVEL + with a short position of Diageo Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of TRAVEL + and Diageo Plc.

Diversification Opportunities for TRAVEL + and Diageo Plc

0.1

Correlation Coefficient

TRAVEL +  Diageo Plc

Average diversification

The 3 months correlation between TRAVEL and Diageo is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding TRAVEL LEISURE DL 01 and Diageo plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo plc and TRAVEL + 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 TRAVEL LEISURE DL 01 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 TRAVEL + i.e., TRAVEL + and Diageo Plc go up and down completely randomly.

Pair Corralation between TRAVEL + and Diageo Plc

Assuming the 90 days trading horizon TRAVEL LEISURE DL 01 is expected to generate 1.17 times more return on investment than Diageo Plc. However, TRAVEL + is 1.17 times more volatile than Diageo plc. It trades about -0.05 of its potential returns per unit of risk. Diageo plc is currently generating about -0.18 per unit of risk. If you would invest  4,822  in TRAVEL LEISURE DL 01 on December 27, 2024 and sell it today you would lose (322.00) from holding TRAVEL LEISURE DL 01 or give up 6.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

TRAVEL LEISURE DL 01  vs.  Diageo plc

TRAVEL LEISURE DL

Risk-Adjusted Performance

Very Weak

Over the last 90 days TRAVEL LEISURE DL 01 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, TRAVEL + is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the 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 basic 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 TRAVEL + and Diageo Plc

The main advantage of trading using opposite TRAVEL + and Diageo Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TRAVEL + 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 TRAVEL LEISURE DL 01 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.

Check out your portfolio center.

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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.