Correlation Between Walgreens Boots and Diageo Plc

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

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

Diversification Opportunities for Walgreens Boots and Diageo Plc

0.33

Correlation Coefficient

Walgreens Boots  Diageo Plc

Weak diversification

The 3 months correlation between Walgreens and Diageo is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Walgreens Boots Alliance and Diageo plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo plc and Walgreens Boots 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 Walgreens Boots Alliance 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 Walgreens Boots i.e., Walgreens Boots and Diageo Plc go up and down completely randomly.

Pair Corralation between Walgreens Boots and Diageo Plc

Considering the 90-day investment horizon Walgreens Boots Alliance is expected to generate 2.25 times more return on investment than Diageo Plc. However, Walgreens Boots is 2.25 times more volatile than Diageo plc. It trades about 0.04 of its potential returns per unit of risk. Diageo plc is currently generating about -0.02 per unit of risk. If you would invest  870.00  in Walgreens Boots Alliance on September 28, 2024 and sell it today you would earn a total of  49.00  from holding Walgreens Boots Alliance or generate 5.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Walgreens Boots Alliance  vs.  Diageo plc

Walgreens Boots Alliance

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Walgreens Boots Alliance are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Walgreens Boots may actually be approaching a critical reversion point that can send shares even higher in January 2025.

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 Walgreens Boots and Diageo Plc

The main advantage of trading using opposite Walgreens Boots and Diageo Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Walgreens Boots 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 Walgreens Boots Alliance 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.