Correlation Between Monks Investment and Diageo PLC

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

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

Diversification Opportunities for Monks Investment and Diageo PLC

-0.58

Correlation Coefficient

Monks Investment  Diageo PLC

Excellent diversification

The 3 months correlation between Monks and Diageo is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Monks Investment Trust and Diageo PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC and Monks Investment 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 Monks Investment Trust 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 Monks Investment i.e., Monks Investment and Diageo PLC go up and down completely randomly.

Pair Corralation between Monks Investment and Diageo PLC

Assuming the 90 days trading horizon Monks Investment Trust is expected to generate 0.56 times more return on investment than Diageo PLC. However, Monks Investment Trust is 1.79 times less risky than Diageo PLC. It trades about 0.22 of its potential returns per unit of risk. Diageo PLC is currently generating about 0.02 per unit of risk. If you would invest  115,600  in Monks Investment Trust on September 20, 2024 and sell it today you would earn a total of  13,000  from holding Monks Investment Trust or generate 11.25% return on investment over 90 days.

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

Monks Investment Trust  vs.  Diageo PLC

Monks Investment Trust

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Monks Investment Trust are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Monks Investment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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.

Pair Trading with Monks Investment and Diageo PLC

The main advantage of trading using opposite Monks Investment and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Monks Investment 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 Monks Investment Trust 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.