Correlation Between Diageo PLC and SM Energy

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

Diversification Opportunities for Diageo PLC and SM Energy

-0.37

Correlation Coefficient

Diageo PLC  SM Energy

Very good diversification

The 3 months correlation between Diageo and 0KZA is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC and SM Energy Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SM 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 SM Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SM Energy has no effect on the direction of Diageo PLC i.e., Diageo PLC and SM Energy go up and down completely randomly.

Pair Corralation between Diageo PLC and SM Energy

Assuming the 90 days trading horizon Diageo PLC is expected to generate 0.55 times more return on investment than SM Energy. However, Diageo PLC is 1.82 times less risky than SM Energy. It trades about 0.0 of its potential returns per unit of risk. SM Energy Co is currently generating about -0.05 per unit of risk. If you would invest  249,750  in Diageo PLC on September 25, 2024 and sell it today you would lose (400.00) from holding Diageo PLC or give up 0.16% of portfolio value over 90 days.

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

Diageo PLC  vs.  SM Energy Co

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.

SM Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SM Energy Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Diageo PLC and SM Energy

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

The idea behind Diageo PLC and SM Energy Co 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..