Correlation Between Diageo PLC and Yuexiu Transport

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

Diversification Opportunities for Diageo PLC and Yuexiu Transport

-0.84

Correlation Coefficient

Diageo PLC  Yuexiu Transport

Pay attention - limited upside

The 3 months correlation between Diageo and Yuexiu is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and Yuexiu Transport Infrastructur in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yuexiu Transport Inf 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 Yuexiu Transport. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yuexiu Transport Inf has no effect on the direction of Diageo PLC i.e., Diageo PLC and Yuexiu Transport go up and down completely randomly.

Pair Corralation between Diageo PLC and Yuexiu Transport

Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the Yuexiu Transport. But the stock apears to be less risky and, when comparing its historical volatility, Diageo PLC ADR is 2.56 times less risky than Yuexiu Transport. The stock trades about -0.11 of its potential returns per unit of risk. The Yuexiu Transport Infrastructure is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  45.00  in Yuexiu Transport Infrastructure on September 29, 2024 and sell it today you would earn a total of  13.00  from holding Yuexiu Transport Infrastructure or generate 28.89% return on investment over 90 days.

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

Diageo PLC ADR  vs.  Yuexiu Transport Infrastructur

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.

Yuexiu Transport Inf

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Yuexiu Transport Infrastructure are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Yuexiu Transport reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diageo PLC and Yuexiu Transport

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

The idea behind Diageo PLC ADR and Yuexiu Transport Infrastructure 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.