Correlation Between Diageo PLC and World Kinect
Can any of the company-specific risk be diversified away by investing in both Diageo PLC and World Kinect 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 World Kinect 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 World Kinect, you can compare the effects of market volatilities on Diageo PLC and World Kinect 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 World Kinect. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diageo PLC and World Kinect.
Diversification Opportunities for Diageo PLC and World Kinect
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Diageo and World is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and World Kinect in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on World Kinect 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 World Kinect. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of World Kinect has no effect on the direction of Diageo PLC i.e., Diageo PLC and World Kinect go up and down completely randomly.
Pair Corralation between Diageo PLC and World Kinect
Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the World Kinect. But the stock apears to be less risky and, when comparing its historical volatility, Diageo PLC ADR is 1.75 times less risky than World Kinect. The stock trades about -0.08 of its potential returns per unit of risk. The World Kinect is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 2,833 in World Kinect on September 2, 2024 and sell it today you would earn a total of 62.00 from holding World Kinect or generate 2.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Diageo PLC ADR vs. World Kinect
Performance |
| Timeline |
| Diageo PLC ADR |
| World Kinect |
Diageo PLC and World Kinect Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Diageo PLC and World Kinect
The main advantage of trading using opposite Diageo PLC and World Kinect positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diageo PLC position performs unexpectedly, World Kinect 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 World Kinect will offset losses from the drop in World Kinect's long position.| Diageo PLC vs. Brown Forman | Diageo PLC vs. Duckhorn Portfolio | Diageo PLC vs. Brown Forman | Diageo PLC vs. Constellation Brands Class |
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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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