Correlation Between 1st Federal and Diageo PLC
Can any of the company-specific risk be diversified away by investing in both 1st Federal 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 1st Federal and Diageo PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between 1st Federal Savings and Diageo PLC ADR, you can compare the effects of market volatilities on 1st Federal 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 1st Federal with a short position of Diageo PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of 1st Federal and Diageo PLC.
Diversification Opportunities for 1st Federal and Diageo PLC
0.27 | Correlation Coefficient |
Modest diversification
The 3 months correlation between 1st and Diageo is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding 1st Federal Savings 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 1st Federal 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 1st Federal Savings 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 1st Federal i.e., 1st Federal and Diageo PLC go up and down completely randomly.
Pair Corralation between 1st Federal and Diageo PLC
Given the investment horizon of 90 days 1st Federal Savings is expected to generate 0.49 times more return on investment than Diageo PLC. However, 1st Federal Savings is 2.06 times less risky than Diageo PLC. It trades about 0.24 of its potential returns per unit of risk. Diageo PLC ADR is currently generating about -0.19 per unit of risk. If you would invest 960.00 in 1st Federal Savings on October 25, 2024 and sell it today you would earn a total of 40.00 from holding 1st Federal Savings or generate 4.17% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
1st Federal Savings vs. Diageo PLC ADR
Performance |
| Timeline |
| 1st Federal Savings |
| Diageo PLC ADR |
1st Federal and Diageo PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with 1st Federal and Diageo PLC
The main advantage of trading using opposite 1st Federal and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if 1st Federal 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.| 1st Federal vs. East West Bancorp | 1st Federal vs. Discover Financial Services | 1st Federal vs. Asbury Automotive Group | 1st Federal vs. The Gap, |
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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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