Correlation Between Diageo PLC and Western Sierra
Can any of the company-specific risk be diversified away by investing in both Diageo PLC and Western Sierra 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 Western Sierra 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 Western Sierra Mining, you can compare the effects of market volatilities on Diageo PLC and Western Sierra 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 Western Sierra. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diageo PLC and Western Sierra.
Diversification Opportunities for Diageo PLC and Western Sierra
0.5 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Diageo and Western is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and Western Sierra Mining in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Western Sierra Mining 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 Western Sierra. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Western Sierra Mining has no effect on the direction of Diageo PLC i.e., Diageo PLC and Western Sierra go up and down completely randomly.
Pair Corralation between Diageo PLC and Western Sierra
Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the Western Sierra. In addition to that, Diageo PLC is 2.92 times more volatile than Western Sierra Mining. It trades about -0.36 of its total potential returns per unit of risk. Western Sierra Mining is currently generating about 0.0 per unit of volatility. If you would invest 0.68 in Western Sierra Mining on August 27, 2024 and sell it today you would earn a total of 0.00 from holding Western Sierra Mining or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Diageo PLC ADR vs. Western Sierra Mining
Performance |
| Timeline |
| Diageo PLC ADR |
| Western Sierra Mining |
Diageo PLC and Western Sierra Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Diageo PLC and Western Sierra
The main advantage of trading using opposite Diageo PLC and Western Sierra positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diageo PLC position performs unexpectedly, Western Sierra 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 Western Sierra will offset losses from the drop in Western Sierra's long position.| Diageo PLC vs. Brown Forman | Diageo PLC vs. MGP Ingredients | Diageo PLC vs. Duckhorn Portfolio | Diageo PLC vs. Brown Forman |
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 Managers module to screen money managers from public funds and ETFs managed around the world.
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