Correlation Between Diageo Plc and ITALIAN WINE

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

By analyzing existing cross correlation between Diageo plc and ITALIAN WINE BRANDS, you can compare the effects of market volatilities on Diageo Plc and ITALIAN WINE 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 ITALIAN WINE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diageo Plc and ITALIAN WINE.

Diversification Opportunities for Diageo Plc and ITALIAN WINE

-0.13

Correlation Coefficient

Diageo Plc  ITALIAN WINE

Good diversification

The 3 months correlation between Diageo and ITALIAN is -0.13. Overlapping area represents the amount of risk that can be diversified away by holding Diageo plc and ITALIAN WINE BRANDS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITALIAN WINE BRANDS 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 ITALIAN WINE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITALIAN WINE BRANDS has no effect on the direction of Diageo Plc i.e., Diageo Plc and ITALIAN WINE go up and down completely randomly.

Pair Corralation between Diageo Plc and ITALIAN WINE

Assuming the 90 days trading horizon Diageo Plc is expected to generate 16.54 times less return on investment than ITALIAN WINE. But when comparing it to its historical volatility, Diageo plc is 1.83 times less risky than ITALIAN WINE. It trades about 0.01 of its potential returns per unit of risk. ITALIAN WINE BRANDS is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,080  in ITALIAN WINE BRANDS on September 25, 2024 and sell it today you would earn a total of  150.00  from holding ITALIAN WINE BRANDS or generate 7.21% return on investment over 90 days.

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

Diageo plc  vs.  ITALIAN WINE BRANDS

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 comparatively stable forward indicators, Diageo Plc is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

ITALIAN WINE BRANDS

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ITALIAN WINE BRANDS are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, ITALIAN WINE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Diageo Plc and ITALIAN WINE

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

The idea behind Diageo plc and ITALIAN WINE BRANDS 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.