Correlation Between Zimmer Biomet and Diageo Plc

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

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

Diversification Opportunities for Zimmer Biomet and Diageo Plc

-0.73

Correlation Coefficient

Zimmer Biomet  Diageo Plc

Pay attention - limited upside

The 3 months correlation between Zimmer and Diageo is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Zimmer Biomet Holdings and Diageo plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo plc and Zimmer Biomet 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 Zimmer Biomet Holdings 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 Zimmer Biomet i.e., Zimmer Biomet and Diageo Plc go up and down completely randomly.

Pair Corralation between Zimmer Biomet and Diageo Plc

Assuming the 90 days horizon Zimmer Biomet Holdings is expected to under-perform the Diageo Plc. But the stock apears to be less risky and, when comparing its historical volatility, Zimmer Biomet Holdings is 1.68 times less risky than Diageo Plc. The stock trades about -0.07 of its potential returns per unit of risk. The Diageo plc is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  2,833  in Diageo plc on September 22, 2024 and sell it today you would earn a total of  205.00  from holding Diageo plc or generate 7.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.65%
Values	Daily Returns

Zimmer Biomet Holdings  vs.  Diageo plc

Zimmer Biomet Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Zimmer Biomet Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Zimmer Biomet may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Diageo plc

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Diageo plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 Zimmer Biomet and Diageo Plc

The main advantage of trading using opposite Zimmer Biomet and Diageo Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zimmer Biomet 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 Zimmer Biomet Holdings 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.