Correlation Between Diageo PLC and Aristocrat Group

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Can any of the company-specific risk be diversified away by investing in both Diageo PLC and Aristocrat Group 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 Diageo PLC and Aristocrat Group into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Diageo PLC ADR and Aristocrat Group Corp, you can compare the effects of market volatilities on Diageo PLC and Aristocrat Group 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 Diageo PLC with a short position of Aristocrat Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diageo PLC and Aristocrat Group.

Diversification Opportunities for Diageo PLC and Aristocrat Group

0.27
  Correlation Coefficient

Modest diversification

The 3 months correlation between Diageo and Aristocrat is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and Aristocrat Group Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aristocrat Group Corp and Diageo PLC 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 Diageo PLC ADR are associated (or correlated) with Aristocrat Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aristocrat Group Corp has no effect on the direction of Diageo PLC i.e., Diageo PLC and Aristocrat Group go up and down completely randomly.

Pair Corralation between Diageo PLC and Aristocrat Group

Considering the 90-day investment horizon Diageo PLC ADR is expected to generate 0.23 times more return on investment than Aristocrat Group. However, Diageo PLC ADR is 4.26 times less risky than Aristocrat Group. It trades about -0.08 of its potential returns per unit of risk. Aristocrat Group Corp is currently generating about -0.15 per unit of risk. If you would invest  13,058  in Diageo PLC ADR on August 28, 2024 and sell it today you would lose (1,019) from holding Diageo PLC ADR or give up 7.8% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Diageo PLC ADR  vs.  Aristocrat Group Corp

 Performance 
       Timeline  
Diageo PLC ADR 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Diageo PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.
Aristocrat Group Corp 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Aristocrat Group Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Diageo PLC and Aristocrat Group Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Diageo PLC and Aristocrat Group

The main advantage of trading using opposite Diageo PLC and Aristocrat Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diageo PLC position performs unexpectedly, Aristocrat Group 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 Aristocrat Group will offset losses from the drop in Aristocrat Group's long position.
The idea behind Diageo PLC ADR and Aristocrat Group Corp 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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