Correlation Between ALERION CLEANPOWER and Diageo Plc

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

By analyzing existing cross correlation between ALERION CLEANPOWER and Diageo plc, you can compare the effects of market volatilities on ALERION CLEANPOWER and Diageo Plc 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 ALERION CLEANPOWER with a short position of Diageo Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of ALERION CLEANPOWER and Diageo Plc.

Diversification Opportunities for ALERION CLEANPOWER and Diageo Plc

-0.27

Correlation Coefficient

ALERION CLEANPOWER  Diageo Plc

Very good diversification

The 3 months correlation between ALERION and Diageo is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding ALERION CLEANPOWER and Diageo plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo plc and ALERION CLEANPOWER 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 ALERION CLEANPOWER are associated (or correlated) with Diageo Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo plc has no effect on the direction of ALERION CLEANPOWER i.e., ALERION CLEANPOWER and Diageo Plc go up and down completely randomly.

Pair Corralation between ALERION CLEANPOWER and Diageo Plc

Assuming the 90 days trading horizon ALERION CLEANPOWER is expected to under-perform the Diageo Plc. In addition to that, ALERION CLEANPOWER is 1.36 times more volatile than Diageo plc. It trades about -0.03 of its total potential returns per unit of risk. Diageo plc is currently generating about -0.02 per unit of volatility. If you would invest  12,400  in Diageo plc on September 29, 2024 and sell it today you would lose (400.00) from holding Diageo plc or give up 3.23% of portfolio value over 90 days.

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

ALERION CLEANPOWER  vs.  Diageo plc

ALERION CLEANPOWER

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ALERION CLEANPOWER has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, ALERION CLEANPOWER is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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. Despite nearly stable forward indicators, Diageo Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with ALERION CLEANPOWER and Diageo Plc

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

The idea behind ALERION CLEANPOWER and Diageo 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.

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.