Correlation Between Edita Food and Diageo PLC
Can any of the company-specific risk be diversified away by investing in both Edita Food 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 Edita Food and Diageo PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Edita Food Industries and Diageo PLC, you can compare the effects of market volatilities on Edita Food 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 Edita Food with a short position of Diageo PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Edita Food and Diageo PLC.
Diversification Opportunities for Edita Food and Diageo PLC
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Edita and Diageo is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Edita Food Industries and Diageo PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC and Edita Food 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 Edita Food Industries 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 has no effect on the direction of Edita Food i.e., Edita Food and Diageo PLC go up and down completely randomly.
Pair Corralation between Edita Food and Diageo PLC
Assuming the 90 days trading horizon Edita Food Industries is expected to generate 2.24 times more return on investment than Diageo PLC. However, Edita Food is 2.24 times more volatile than Diageo PLC. It trades about 0.01 of its potential returns per unit of risk. Diageo PLC is currently generating about -0.05 per unit of risk. If you would invest 207.00 in Edita Food Industries on September 14, 2024 and sell it today you would lose (7.00) from holding Edita Food Industries or give up 3.38% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 99.8% |
| Values | Daily Returns |
Edita Food Industries vs. Diageo PLC
Performance |
| Timeline |
| Edita Food Industries |
| Diageo PLC |
Edita Food and Diageo PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Edita Food and Diageo PLC
The main advantage of trading using opposite Edita Food and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Edita Food 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.| Edita Food vs. Walmart | Edita Food vs. BYD Co | Edita Food vs. Volkswagen AG Non Vtg | Edita Food vs. Compass Group PLC |
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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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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