Correlation Between British Amer and Diageo PLC
Can any of the company-specific risk be diversified away by investing in both British Amer 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 British Amer and Diageo PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between British American Tobacco and Diageo PLC ADR, you can compare the effects of market volatilities on British Amer 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 British Amer with a short position of Diageo PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of British Amer and Diageo PLC.
Diversification Opportunities for British Amer and Diageo PLC
-0.1 | Correlation Coefficient |
Good diversification
The 3 months correlation between British and Diageo is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco 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 British Amer 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 British American Tobacco 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 British Amer i.e., British Amer and Diageo PLC go up and down completely randomly.
Pair Corralation between British Amer and Diageo PLC
Considering the 90-day investment horizon British American Tobacco is expected to generate 0.71 times more return on investment than Diageo PLC. However, British American Tobacco is 1.41 times less risky than Diageo PLC. It trades about 0.14 of its potential returns per unit of risk. Diageo PLC ADR is currently generating about -0.05 per unit of risk. If you would invest 2,816 in British American Tobacco on November 5, 2024 and sell it today you would earn a total of 1,148 from holding British American Tobacco or generate 40.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
British American Tobacco vs. Diageo PLC ADR
Performance |
| Timeline |
| British American Tobacco |
| Diageo PLC ADR |
British Amer and Diageo PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with British Amer and Diageo PLC
The main advantage of trading using opposite British Amer and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British Amer 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.| British Amer vs. Philip Morris International | British Amer vs. Universal | British Amer vs. Imperial Brands PLC | British Amer vs. Altria Group |
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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.
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