Correlation Between Diageo PLC and PennantPark Investment

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

Diversification Opportunities for Diageo PLC and PennantPark Investment

-0.19

Correlation Coefficient

Diageo PLC  PennantPark Investment

Good diversification

The 3 months correlation between Diageo and PennantPark is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and PennantPark Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennantPark 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 PennantPark Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PennantPark Investment has no effect on the direction of Diageo PLC i.e., Diageo PLC and PennantPark Investment go up and down completely randomly.

Pair Corralation between Diageo PLC and PennantPark Investment

Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the PennantPark Investment. In addition to that, Diageo PLC is 1.27 times more volatile than PennantPark Investment. It trades about -0.11 of its total potential returns per unit of risk. PennantPark Investment is currently generating about 0.06 per unit of volatility. If you would invest  675.00  in PennantPark Investment on September 29, 2024 and sell it today you would earn a total of  24.00  from holding PennantPark Investment or generate 3.56% return on investment over 90 days.

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

Diageo PLC ADR  vs.  PennantPark 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.

PennantPark Investment

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in PennantPark Investment are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, PennantPark Investment is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Diageo PLC and PennantPark Investment

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

The idea behind Diageo PLC ADR and PennantPark 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.

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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.