Correlation Between United Fire and Diageo PLC
Can any of the company-specific risk be diversified away by investing in both United Fire 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 United Fire and Diageo PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between United Fire Group and Diageo PLC ADR, you can compare the effects of market volatilities on United Fire 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 United Fire with a short position of Diageo PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Fire and Diageo PLC.
Diversification Opportunities for United Fire and Diageo PLC
-0.47 | Correlation Coefficient |
Very good diversification
The 3 months correlation between United and Diageo is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding United Fire Group 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 United Fire 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 United Fire Group 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 United Fire i.e., United Fire and Diageo PLC go up and down completely randomly.
Pair Corralation between United Fire and Diageo PLC
Given the investment horizon of 90 days United Fire Group is expected to under-perform the Diageo PLC. But the stock apears to be less risky and, when comparing its historical volatility, United Fire Group is 1.08 times less risky than Diageo PLC. The stock trades about -0.21 of its potential returns per unit of risk. The Diageo PLC ADR is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest 12,569 in Diageo PLC ADR on October 23, 2024 and sell it today you would lose (690.00) from holding Diageo PLC ADR or give up 5.49% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
United Fire Group vs. Diageo PLC ADR
Performance |
| Timeline |
| United Fire Group |
| Diageo PLC ADR |
United Fire and Diageo PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with United Fire and Diageo PLC
The main advantage of trading using opposite United Fire and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Fire 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.| United Fire vs. Donegal Group B | United Fire vs. Horace Mann Educators | United Fire vs. Donegal Group A | United Fire vs. Global Indemnity 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.
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