Correlation Between BCE and Diageo PLC
Can any of the company-specific risk be diversified away by investing in both BCE 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 BCE and Diageo PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BCE Inc and Diageo PLC ADR, you can compare the effects of market volatilities on BCE 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 BCE with a short position of Diageo PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of BCE and Diageo PLC.
Diversification Opportunities for BCE and Diageo PLC
0.83 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between BCE and Diageo is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding BCE Inc and Diageo PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC ADR and BCE 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 BCE Inc 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 ADR has no effect on the direction of BCE i.e., BCE and Diageo PLC go up and down completely randomly.
Pair Corralation between BCE and Diageo PLC
Considering the 90-day investment horizon BCE Inc is expected to under-perform the Diageo PLC. But the stock apears to be less risky and, when comparing its historical volatility, BCE Inc is 1.22 times less risky than Diageo PLC. The stock trades about -0.08 of its potential returns per unit of risk. The Diageo PLC ADR is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest 17,008 in Diageo PLC ADR on September 19, 2024 and sell it today you would lose (4,154) from holding Diageo PLC ADR or give up 24.42% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BCE Inc vs. Diageo PLC ADR
Performance |
| Timeline |
| BCE Inc |
| Diageo PLC ADR |
BCE and Diageo PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BCE and Diageo PLC
The main advantage of trading using opposite BCE and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BCE 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 BCE Inc and Diageo PLC ADR 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.| Diageo PLC vs. Naked Wines plc | Diageo PLC vs. Andrew Peller Limited | Diageo PLC vs. Iconic Brands | Diageo PLC vs. Naked Wines plc |
Check out your portfolio center.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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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