Correlation Between Diageo PLC and Safety Shot

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

Diversification Opportunities for Diageo PLC and Safety Shot

0.67

Correlation Coefficient

Diageo PLC  Safety Shot

Poor diversification

The 3 months correlation between Diageo and Safety is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and Safety Shot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Safety Shot 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 Safety Shot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Safety Shot has no effect on the direction of Diageo PLC i.e., Diageo PLC and Safety Shot go up and down completely randomly.

Pair Corralation between Diageo PLC and Safety Shot

Considering the 90-day investment horizon Diageo PLC ADR is expected to generate 0.32 times more return on investment than Safety Shot. However, Diageo PLC ADR is 3.1 times less risky than Safety Shot. It trades about -0.08 of its potential returns per unit of risk. Safety Shot is currently generating about -0.15 per unit of risk. If you would invest  13,631  in Diageo PLC ADR on September 24, 2024 and sell it today you would lose (1,084) from holding Diageo PLC ADR or give up 7.95% of portfolio value over 90 days.

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

Diageo PLC ADR  vs.  Safety Shot

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.

Safety Shot

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Safety Shot has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Diageo PLC and Safety Shot

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

The idea behind Diageo PLC ADR and Safety Shot 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.