Correlation Between Marcus and Diageo Plc

Can any of the company-specific risk be diversified away by investing in both Marcus 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 Marcus and Diageo Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Marcus and Diageo plc, you can compare the effects of market volatilities on Marcus 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 Marcus with a short position of Diageo Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Marcus and Diageo Plc.

Diversification Opportunities for Marcus and Diageo Plc

0.67

Correlation Coefficient

Marcus  Diageo Plc

Poor diversification

The 3 months correlation between Marcus and Diageo is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Marcus and Diageo plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo plc and Marcus 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 Marcus 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 Marcus i.e., Marcus and Diageo Plc go up and down completely randomly.

Pair Corralation between Marcus and Diageo Plc

Considering the 90-day investment horizon Marcus is expected to under-perform the Diageo Plc. But the stock apears to be less risky and, when comparing its historical volatility, Marcus is 1.09 times less risky than Diageo Plc. The stock trades about -0.33 of its potential returns per unit of risk. The Diageo plc is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  3,575  in Diageo plc on January 20, 2024 and sell it today you would lose (137.00) from holding Diageo plc or give up 3.83% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Marcus  vs.  Diageo plc

Marcus

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Marcus has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Marcus is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Diageo plc

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Diageo plc are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Diageo Plc is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Marcus and Diageo Plc

The main advantage of trading using opposite Marcus and Diageo Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Marcus 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.

The idea behind Marcus and Diageo plc pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.