Correlation Between BRP and Diageo PLC
Can any of the company-specific risk be diversified away by investing in both BRP and Diageo PLC 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 BRP and Diageo PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BRP Inc and Diageo PLC ADR, you can compare the effects of market volatilities on BRP and Diageo PLC 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 BRP with a short position of Diageo PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of BRP and Diageo PLC.
Diversification Opportunities for BRP and Diageo PLC
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BRP and Diageo is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding BRP Inc and Diageo PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC ADR and BRP 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 BRP Inc are associated (or correlated) with Diageo PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diageo PLC ADR has no effect on the direction of BRP i.e., BRP and Diageo PLC go up and down completely randomly.
Pair Corralation between BRP and Diageo PLC
Given the investment horizon of 90 days BRP Inc is expected to under-perform the Diageo PLC. In addition to that, BRP is 1.64 times more volatile than Diageo PLC ADR. It trades about -0.09 of its total potential returns per unit of risk. Diageo PLC ADR is currently generating about -0.07 per unit of volatility. If you would invest 14,061 in Diageo PLC ADR on September 3, 2024 and sell it today you would lose (2,125) from holding Diageo PLC ADR or give up 15.11% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BRP Inc vs. Diageo PLC ADR
Performance |
| Timeline |
| BRP Inc |
| Diageo PLC ADR |
BRP and Diageo PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BRP and Diageo PLC
The main advantage of trading using opposite BRP and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BRP position performs unexpectedly, Diageo PLC 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 Diageo PLC will offset losses from the drop in Diageo PLC's long position.The idea behind BRP Inc and Diageo PLC ADR 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.| 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.
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