Correlation Between Diageo PLC and Sea

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

Diversification Opportunities for Diageo PLC and Sea

-0.62

Correlation Coefficient

Diageo PLC  Sea

Excellent diversification

The 3 months correlation between Diageo and Sea is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and Sea in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sea 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 Sea. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sea has no effect on the direction of Diageo PLC i.e., Diageo PLC and Sea go up and down completely randomly.

Pair Corralation between Diageo PLC and Sea

Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the Sea. But the stock apears to be less risky and, when comparing its historical volatility, Diageo PLC ADR is 1.64 times less risky than Sea. The stock trades about -0.03 of its potential returns per unit of risk. The Sea is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  8,571  in Sea on September 20, 2024 and sell it today you would earn a total of  2,528  from holding Sea or generate 29.49% return on investment over 90 days.

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

Diageo PLC ADR  vs.  Sea

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.

Sea

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sea are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Sea exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diageo PLC and Sea

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

The idea behind Diageo PLC ADR and Sea 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.