Correlation Between FuelCell Energy and Diageo PLC

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

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

Diversification Opportunities for FuelCell Energy and Diageo PLC

0.4

Correlation Coefficient

FuelCell Energy  Diageo PLC

Very weak diversification

The 3 months correlation between FuelCell and Diageo is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding FuelCell Energy and Diageo PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC and FuelCell Energy 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 FuelCell Energy 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 FuelCell Energy i.e., FuelCell Energy and Diageo PLC go up and down completely randomly.

Pair Corralation between FuelCell Energy and Diageo PLC

Assuming the 90 days trading horizon FuelCell Energy is expected to generate 6.9 times more return on investment than Diageo PLC. However, FuelCell Energy is 6.9 times more volatile than Diageo PLC. It trades about 0.01 of its potential returns per unit of risk. Diageo PLC is currently generating about -0.03 per unit of risk. If you would invest  1,182  in FuelCell Energy on September 30, 2024 and sell it today you would lose (179.00) from holding FuelCell Energy or give up 15.14% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

FuelCell Energy  vs.  Diageo PLC

FuelCell Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FuelCell Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, FuelCell Energy is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

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. In spite of rather sound technical and fundamental indicators, Diageo PLC is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with FuelCell Energy and Diageo PLC

The main advantage of trading using opposite FuelCell Energy and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FuelCell Energy 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 FuelCell Energy 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.