Correlation Between Diageo PLC and Direct Line
Can any of the company-specific risk be diversified away by investing in both Diageo PLC and Direct Line 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 Direct Line 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 Direct Line Insurance, you can compare the effects of market volatilities on Diageo PLC and Direct Line 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 Direct Line. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diageo PLC and Direct Line.
Diversification Opportunities for Diageo PLC and Direct Line
0.21 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Diageo and Direct is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and Direct Line Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direct Line Insurance 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 Direct Line. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direct Line Insurance has no effect on the direction of Diageo PLC i.e., Diageo PLC and Direct Line go up and down completely randomly.
Pair Corralation between Diageo PLC and Direct Line
Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the Direct Line. In addition to that, Diageo PLC is 1.58 times more volatile than Direct Line Insurance. It trades about -0.15 of its total potential returns per unit of risk. Direct Line Insurance is currently generating about 0.09 per unit of volatility. If you would invest 1,253 in Direct Line Insurance on October 22, 2024 and sell it today you would earn a total of 25.00 from holding Direct Line Insurance or generate 2.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Diageo PLC ADR vs. Direct Line Insurance
Performance |
| Timeline |
| Diageo PLC ADR |
| Direct Line Insurance |
Diageo PLC and Direct Line Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Diageo PLC and Direct Line
The main advantage of trading using opposite Diageo PLC and Direct Line positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diageo PLC position performs unexpectedly, Direct Line 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 Direct Line will offset losses from the drop in Direct Line's long position.| Diageo PLC vs. Brown Forman | Diageo PLC vs. MGP Ingredients | Diageo PLC vs. Brown Forman | Diageo PLC vs. Constellation Brands Class |
| Direct Line vs. Westrock Coffee | Direct Line vs. BJs Restaurants | Direct Line vs. RCI Hospitality Holdings | Direct Line vs. Diageo PLC ADR |
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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.
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