Correlation Between London Stock and Diageo PLC
Can any of the company-specific risk be diversified away by investing in both London Stock 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 London Stock and Diageo PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between London Stock Exchange and Diageo PLC, you can compare the effects of market volatilities on London Stock 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 London Stock with a short position of Diageo PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of London Stock and Diageo PLC.
Diversification Opportunities for London Stock and Diageo PLC
-0.56 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between London and Diageo is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding London Stock Exchange and Diageo PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo PLC and London Stock 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 London Stock Exchange 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 London Stock i.e., London Stock and Diageo PLC go up and down completely randomly.
Pair Corralation between London Stock and Diageo PLC
Assuming the 90 days trading horizon London Stock Exchange is expected to generate 0.69 times more return on investment than Diageo PLC. However, London Stock Exchange is 1.44 times less risky than Diageo PLC. It trades about 0.1 of its potential returns per unit of risk. Diageo PLC is currently generating about -0.06 per unit of risk. If you would invest 721,043 in London Stock Exchange on August 30, 2024 and sell it today you would earn a total of 402,957 from holding London Stock Exchange or generate 55.89% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
London Stock Exchange vs. Diageo PLC
Performance |
| Timeline |
| London Stock Exchange |
| Diageo PLC |
London Stock and Diageo PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with London Stock and Diageo PLC
The main advantage of trading using opposite London Stock and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if London Stock 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.| London Stock vs. Toyota Motor Corp | London Stock vs. Neometals | London Stock vs. Coor Service Management | London Stock vs. JPMorgan ETFs ICAV |
| Diageo PLC vs. Finnair Oyj | Diageo PLC vs. Alaska Air Group | Diageo PLC vs. Fair Oaks Income | Diageo PLC vs. National Bank of |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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