Correlation Between KOOL2PLAY and Diageo Plc

Can any of the company-specific risk be diversified away by investing in both KOOL2PLAY 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 KOOL2PLAY and Diageo Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between KOOL2PLAY SA ZY and Diageo plc, you can compare the effects of market volatilities on KOOL2PLAY 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 KOOL2PLAY with a short position of Diageo Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of KOOL2PLAY and Diageo Plc.

Diversification Opportunities for KOOL2PLAY and Diageo Plc

0.63

Correlation Coefficient

KOOL2PLAY  Diageo Plc

Poor diversification

The 3 months correlation between KOOL2PLAY and Diageo is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding KOOL2PLAY SA ZY and Diageo plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo plc and KOOL2PLAY 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 KOOL2PLAY SA ZY 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 KOOL2PLAY i.e., KOOL2PLAY and Diageo Plc go up and down completely randomly.

Pair Corralation between KOOL2PLAY and Diageo Plc

Assuming the 90 days horizon KOOL2PLAY SA ZY is expected to under-perform the Diageo Plc. In addition to that, KOOL2PLAY is 2.63 times more volatile than Diageo plc. It trades about -0.08 of its total potential returns per unit of risk. Diageo plc is currently generating about -0.02 per unit of volatility. If you would invest  12,400  in Diageo plc on September 29, 2024 and sell it today you would lose (400.00) from holding Diageo plc or give up 3.23% of portfolio value over 90 days.

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

KOOL2PLAY SA ZY  vs.  Diageo plc

KOOL2PLAY SA ZY

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KOOL2PLAY SA ZY 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 January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 forward 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 KOOL2PLAY and Diageo Plc

The main advantage of trading using opposite KOOL2PLAY and Diageo Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KOOL2PLAY 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 KOOL2PLAY SA ZY 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.