Correlation Between Diageo PLC and NL Industries
Can any of the company-specific risk be diversified away by investing in both Diageo PLC and NL Industries 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 NL Industries 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 NL Industries, you can compare the effects of market volatilities on Diageo PLC and NL Industries 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 NL Industries. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diageo PLC and NL Industries.
Diversification Opportunities for Diageo PLC and NL Industries
-0.31 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Diageo and NL Industries is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and NL Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NL Industries 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 NL Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NL Industries has no effect on the direction of Diageo PLC i.e., Diageo PLC and NL Industries go up and down completely randomly.
Pair Corralation between Diageo PLC and NL Industries
Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the NL Industries. But the stock apears to be less risky and, when comparing its historical volatility, Diageo PLC ADR is 1.99 times less risky than NL Industries. The stock trades about -0.08 of its potential returns per unit of risk. The NL Industries is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 631.00 in NL Industries on September 4, 2024 and sell it today you would earn a total of 180.00 from holding NL Industries or generate 28.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Diageo PLC ADR vs. NL Industries
Performance |
| Timeline |
| Diageo PLC ADR |
| NL Industries |
Diageo PLC and NL Industries Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Diageo PLC and NL Industries
The main advantage of trading using opposite Diageo PLC and NL Industries positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diageo PLC position performs unexpectedly, NL Industries 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 NL Industries will offset losses from the drop in NL Industries' long position.| Diageo PLC vs. Brown Forman | Diageo PLC vs. MGP Ingredients | Diageo PLC vs. Duckhorn Portfolio | Diageo PLC vs. Brown Forman |
| NL Industries vs. Atos SE | NL Industries vs. Deveron Corp | NL Industries vs. Appen Limited | NL Industries vs. Atos Origin SA |
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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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