Correlation Between Vodafone Group and Diageo PLC

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

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

Diversification Opportunities for Vodafone Group and Diageo PLC

0.55

Correlation Coefficient

Vodafone Group  Diageo PLC

Very weak diversification

The 3 months correlation between Vodafone and Diageo is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Vodafone Group PLC and Diageo PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC and Vodafone Group 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 Vodafone Group PLC 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 Vodafone Group i.e., Vodafone Group and Diageo PLC go up and down completely randomly.

Pair Corralation between Vodafone Group and Diageo PLC

Assuming the 90 days trading horizon Vodafone Group PLC is expected to under-perform the Diageo PLC. In addition to that, Vodafone Group is 1.06 times more volatile than Diageo PLC. It trades about -0.11 of its total potential returns per unit of risk. Diageo PLC is currently generating about -0.01 per unit of volatility. If you would invest  255,200  in Diageo PLC on September 19, 2024 and sell it today you would lose (3,350) from holding Diageo PLC or give up 1.31% of portfolio value over 90 days.

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

Vodafone Group PLC  vs.  Diageo PLC

Vodafone Group PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vodafone Group PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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.

Pair Trading with Vodafone Group and Diageo PLC

The main advantage of trading using opposite Vodafone Group and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vodafone Group 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 Vodafone Group PLC 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.