Correlation Between Diageo PLC and Anglo American

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

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

Diversification Opportunities for Diageo PLC and Anglo American

-0.02

Correlation Coefficient

Diageo PLC  Anglo American

Good diversification

The 3 months correlation between Diageo and Anglo is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC and Anglo American PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Anglo American PLC 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 Anglo American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Anglo American PLC has no effect on the direction of Diageo PLC i.e., Diageo PLC and Anglo American go up and down completely randomly.

Pair Corralation between Diageo PLC and Anglo American

Assuming the 90 days trading horizon Diageo PLC is expected to generate 0.83 times more return on investment than Anglo American. However, Diageo PLC is 1.2 times less risky than Anglo American. It trades about 0.21 of its potential returns per unit of risk. Anglo American PLC is currently generating about 0.13 per unit of risk. If you would invest  236,350  in Diageo PLC on September 20, 2024 and sell it today you would earn a total of  16,200  from holding Diageo PLC or generate 6.85% return on investment over 90 days.

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

Diageo PLC  vs.  Anglo American PLC

Diageo PLC

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Diageo PLC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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.

Anglo American PLC

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Anglo American PLC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Anglo American exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Diageo PLC and Anglo American

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

The idea behind Diageo PLC and Anglo American PLC 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.