Correlation Between Diageo PLC and Treasury Wine

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

Diversification Opportunities for Diageo PLC and Treasury Wine

0.73

Correlation Coefficient

Diageo PLC  Treasury Wine

Poor diversification

The 3 months correlation between Diageo and Treasury is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and Treasury Wine Estates in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Treasury Wine Estates 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 Treasury Wine. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Treasury Wine Estates has no effect on the direction of Diageo PLC i.e., Diageo PLC and Treasury Wine go up and down completely randomly.

Pair Corralation between Diageo PLC and Treasury Wine

Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the Treasury Wine. But the stock apears to be less risky and, when comparing its historical volatility, Diageo PLC ADR is 1.4 times less risky than Treasury Wine. The stock trades about -0.08 of its potential returns per unit of risk. The Treasury Wine Estates is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  749.00  in Treasury Wine Estates on September 3, 2024 and sell it today you would lose (9.00) from holding Treasury Wine Estates or give up 1.2% 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.  Treasury Wine Estates

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.

Treasury Wine Estates

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Treasury Wine Estates has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Treasury Wine is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Diageo PLC and Treasury Wine

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

The idea behind Diageo PLC ADR and Treasury Wine Estates 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.