Correlation Between Diageo PLC and Take Two

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

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

Diversification Opportunities for Diageo PLC and Take Two

-0.67

Correlation Coefficient

Diageo PLC  Take Two

Excellent diversification

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

Pair Corralation between Diageo PLC and Take Two

Assuming the 90 days trading horizon Diageo PLC is expected to generate 1.34 times more return on investment than Take Two. However, Diageo PLC is 1.34 times more volatile than Take Two Interactive Software. It trades about 0.23 of its potential returns per unit of risk. Take Two Interactive Software is currently generating about 0.13 per unit of risk. If you would invest  236,050  in Diageo PLC on September 19, 2024 and sell it today you would earn a total of  17,550  from holding Diageo PLC or generate 7.43% return on investment over 90 days.

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

Diageo PLC  vs.  Take Two Interactive Software

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.

Take Two Interactive

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Take Two Interactive Software are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Take Two unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diageo PLC and Take Two

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

The idea behind Diageo PLC and Take Two Interactive Software 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.