Correlation Between Coty and Diageo PLC

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

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

Diversification Opportunities for Coty and Diageo PLC

0.75

Correlation Coefficient

Coty  Diageo PLC

Poor diversification

The 3 months correlation between Coty and Diageo is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Coty Inc and Diageo PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC ADR and Coty 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 Coty Inc 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 ADR has no effect on the direction of Coty i.e., Coty and Diageo PLC go up and down completely randomly.

Pair Corralation between Coty and Diageo PLC

Given the investment horizon of 90 days Coty Inc is expected to under-perform the Diageo PLC. In addition to that, Coty is 1.54 times more volatile than Diageo PLC ADR. It trades about -0.13 of its total potential returns per unit of risk. Diageo PLC ADR is currently generating about -0.01 per unit of volatility. If you would invest  13,294  in Diageo PLC ADR on September 18, 2024 and sell it today you would lose (228.00) from holding Diageo PLC ADR or give up 1.72% of portfolio value over 90 days.

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

Coty Inc  vs.  Diageo PLC ADR

Coty Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Coty Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Diageo PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diageo PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Diageo PLC is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Coty and Diageo PLC

The main advantage of trading using opposite Coty and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coty 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 Coty Inc and Diageo PLC ADR 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.