Correlation Between Diageo PLC and FRANKLIN

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

Diversification Opportunities for Diageo PLC and FRANKLIN

0.1

Correlation Coefficient

Diageo PLC  FRANKLIN

Average diversification

The 3 months correlation between Diageo and FRANKLIN is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and FRANKLIN RES INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FRANKLIN RES INC 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 FRANKLIN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FRANKLIN RES INC has no effect on the direction of Diageo PLC i.e., Diageo PLC and FRANKLIN go up and down completely randomly.

Pair Corralation between Diageo PLC and FRANKLIN

Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the FRANKLIN. In addition to that, Diageo PLC is 15.15 times more volatile than FRANKLIN RES INC. It trades about -0.06 of its total potential returns per unit of risk. FRANKLIN RES INC is currently generating about -0.02 per unit of volatility. If you would invest  9,919  in FRANKLIN RES INC on September 13, 2024 and sell it today you would lose (7.00) from holding FRANKLIN RES INC or give up 0.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	76.74%
Values	Daily Returns

Diageo PLC ADR  vs.  FRANKLIN RES INC

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.

FRANKLIN RES INC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FRANKLIN RES INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, FRANKLIN 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 FRANKLIN

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

The idea behind Diageo PLC ADR and FRANKLIN RES INC 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.