Correlation Between Diageo PLC and Seadrill

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

Diversification Opportunities for Diageo PLC and Seadrill

-0.39

Correlation Coefficient

Diageo PLC  Seadrill

Very good diversification

The 3 months correlation between Diageo and Seadrill is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and Seadrill Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Seadrill Limited 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 Seadrill. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Seadrill Limited has no effect on the direction of Diageo PLC i.e., Diageo PLC and Seadrill go up and down completely randomly.

Pair Corralation between Diageo PLC and Seadrill

Considering the 90-day investment horizon Diageo PLC ADR is expected to generate 0.57 times more return on investment than Seadrill. However, Diageo PLC ADR is 1.75 times less risky than Seadrill. It trades about 0.27 of its potential returns per unit of risk. Seadrill Limited is currently generating about -0.02 per unit of risk. If you would invest  11,968  in Diageo PLC ADR on September 13, 2024 and sell it today you would earn a total of  956.00  from holding Diageo PLC ADR or generate 7.99% 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.  Seadrill Limited

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.

Seadrill Limited

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Seadrill Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Seadrill is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Diageo PLC and Seadrill

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

The idea behind Diageo PLC ADR and Seadrill Limited 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.