Correlation Between Diageo PLC and Compania Cervecerias

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

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

Diversification Opportunities for Diageo PLC and Compania Cervecerias

0.08

Correlation Coefficient

Diageo PLC  Compania Cervecerias

Significant diversification

The 3 months correlation between Diageo and Compania is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and Compania Cervecerias Unidas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compania Cervecerias and Diageo PLC 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 Diageo PLC ADR are associated (or correlated) with Compania Cervecerias. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compania Cervecerias has no effect on the direction of Diageo PLC i.e., Diageo PLC and Compania Cervecerias go up and down completely randomly.

Pair Corralation between Diageo PLC and Compania Cervecerias

Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the Compania Cervecerias. But the stock apears to be less risky and, when comparing its historical volatility, Diageo PLC ADR is 1.16 times less risky than Compania Cervecerias. The stock trades about -0.04 of its potential returns per unit of risk. The Compania Cervecerias Unidas is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,029  in Compania Cervecerias Unidas on September 12, 2024 and sell it today you would earn a total of  153.50  from holding Compania Cervecerias Unidas or generate 14.92% return on investment over 90 days.

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

Diageo PLC ADR  vs.  Compania Cervecerias Unidas

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.

Compania Cervecerias

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Compania Cervecerias Unidas are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating fundamental indicators, Compania Cervecerias unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diageo PLC and Compania Cervecerias

The main advantage of trading using opposite Diageo PLC and Compania Cervecerias positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diageo PLC position performs unexpectedly, Compania Cervecerias 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 Compania Cervecerias will offset losses from the drop in Compania Cervecerias' long position.

The idea behind Diageo PLC ADR and Compania Cervecerias Unidas 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.