Correlation Between Relx PLC and Diageo PLC
Can any of the company-specific risk be diversified away by investing in both Relx PLC 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 Relx PLC and Diageo PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Relx PLC ADR and Diageo PLC ADR, you can compare the effects of market volatilities on Relx PLC 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 Relx PLC with a short position of Diageo PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Relx PLC and Diageo PLC.
Diversification Opportunities for Relx PLC and Diageo PLC
0.42 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Relx and Diageo is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Relx PLC ADR 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 Relx 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 Relx PLC ADR 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 Relx PLC i.e., Relx PLC and Diageo PLC go up and down completely randomly.
Pair Corralation between Relx PLC and Diageo PLC
Given the investment horizon of 90 days Relx PLC ADR is expected to under-perform the Diageo PLC. But the stock apears to be less risky and, when comparing its historical volatility, Relx PLC ADR is 1.07 times less risky than Diageo PLC. The stock trades about -0.03 of its potential returns per unit of risk. The Diageo PLC ADR is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 12,059 in Diageo PLC ADR on September 12, 2024 and sell it today you would earn a total of 692.00 from holding Diageo PLC ADR or generate 5.74% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Relx PLC ADR vs. Diageo PLC ADR
Performance |
| Timeline |
| Relx PLC ADR |
| Diageo PLC ADR |
Relx PLC and Diageo PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Relx PLC and Diageo PLC
The main advantage of trading using opposite Relx PLC and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Relx PLC 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.| Relx PLC vs. Maximus | Relx PLC vs. CBIZ Inc | Relx PLC vs. First Advantage Corp | Relx PLC vs. Network 1 Technologies |
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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 Global Correlations module to find global opportunities by holding instruments from different markets.
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