Correlation Between Diageo PLC and National Vision

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

Diversification Opportunities for Diageo PLC and National Vision

-0.72

Correlation Coefficient

Diageo PLC  National Vision

Pay attention - limited upside

The 3 months correlation between Diageo and National is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and National Vision Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Vision Holdings 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 National Vision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Vision Holdings has no effect on the direction of Diageo PLC i.e., Diageo PLC and National Vision go up and down completely randomly.

Pair Corralation between Diageo PLC and National Vision

Considering the 90-day investment horizon Diageo PLC ADR is expected to generate 0.4 times more return on investment than National Vision. However, Diageo PLC ADR is 2.47 times less risky than National Vision. It trades about -0.03 of its potential returns per unit of risk. National Vision Holdings is currently generating about -0.06 per unit of risk. If you would invest  14,140  in Diageo PLC ADR on September 24, 2024 and sell it today you would lose (1,678) from holding Diageo PLC ADR or give up 11.87% of portfolio value over 90 days.

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

Diageo PLC ADR  vs.  National Vision Holdings

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.

National Vision Holdings

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in National Vision Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, National Vision may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Diageo PLC and National Vision

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

The idea behind Diageo PLC ADR and National Vision Holdings 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.