Correlation Between Diageo PLC and FuelCell Energy

Can any of the company-specific risk be diversified away by investing in both Diageo PLC and FuelCell Energy 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 FuelCell Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Diageo PLC and FuelCell Energy, you can compare the effects of market volatilities on Diageo PLC and FuelCell Energy 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 FuelCell Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diageo PLC and FuelCell Energy.

Diversification Opportunities for Diageo PLC and FuelCell Energy

0.43

Correlation Coefficient

Diageo PLC  FuelCell Energy

Very weak diversification

The 3 months correlation between Diageo and FuelCell is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC and FuelCell Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FuelCell Energy 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 are associated (or correlated) with FuelCell Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FuelCell Energy has no effect on the direction of Diageo PLC i.e., Diageo PLC and FuelCell Energy go up and down completely randomly.

Pair Corralation between Diageo PLC and FuelCell Energy

Assuming the 90 days trading horizon Diageo PLC is expected to generate 34.64 times less return on investment than FuelCell Energy. But when comparing it to its historical volatility, Diageo PLC is 6.18 times less risky than FuelCell Energy. It trades about 0.0 of its potential returns per unit of risk. FuelCell Energy is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,202  in FuelCell Energy on September 25, 2024 and sell it today you would lose (81.00) from holding FuelCell Energy or give up 6.74% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

Diageo PLC  vs.  FuelCell Energy

Diageo PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Diageo PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Diageo PLC is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

FuelCell Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FuelCell Energy are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, FuelCell Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diageo PLC and FuelCell Energy

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

The idea behind Diageo PLC and FuelCell Energy 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.