Correlation Between Diageo PLC and Chimera Investment

Can any of the company-specific risk be diversified away by investing in both Diageo PLC and Chimera Investment 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 Chimera Investment 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 Chimera Investment, you can compare the effects of market volatilities on Diageo PLC and Chimera Investment 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 Chimera Investment. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diageo PLC and Chimera Investment.

Diversification Opportunities for Diageo PLC and Chimera Investment

0.07

Correlation Coefficient

Diageo PLC  Chimera Investment

Significant diversification

The 3 months correlation between Diageo and Chimera is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and Chimera Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chimera Investment 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 Chimera Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chimera Investment has no effect on the direction of Diageo PLC i.e., Diageo PLC and Chimera Investment go up and down completely randomly.

Pair Corralation between Diageo PLC and Chimera Investment

Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the Chimera Investment. In addition to that, Diageo PLC is 3.71 times more volatile than Chimera Investment. It trades about -0.08 of its total potential returns per unit of risk. Chimera Investment is currently generating about 0.09 per unit of volatility. If you would invest  2,469  in Chimera Investment on September 5, 2024 and sell it today you would earn a total of  55.00  from holding Chimera Investment or generate 2.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Diageo PLC ADR  vs.  Chimera Investment

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 latest weak performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Chimera Investment

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Chimera Investment are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, Chimera Investment is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Diageo PLC and Chimera Investment

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

The idea behind Diageo PLC ADR and Chimera Investment 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.

Check out your portfolio center.

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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.