Correlation Between Definitive Healthcare and Diageo PLC

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

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

Diversification Opportunities for Definitive Healthcare and Diageo PLC

0.63

Correlation Coefficient

Definitive Healthcare  Diageo PLC

Poor diversification

The 3 months correlation between Definitive and Diageo is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Definitive Healthcare Corp 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 Definitive Healthcare 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 Definitive Healthcare Corp 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 Definitive Healthcare i.e., Definitive Healthcare and Diageo PLC go up and down completely randomly.

Pair Corralation between Definitive Healthcare and Diageo PLC

Allowing for the 90-day total investment horizon Definitive Healthcare Corp is expected to under-perform the Diageo PLC. In addition to that, Definitive Healthcare is 2.91 times more volatile than Diageo PLC ADR. It trades about -0.04 of its total potential returns per unit of risk. Diageo PLC ADR is currently generating about -0.02 per unit of volatility. If you would invest  17,614  in Diageo PLC ADR on February 13, 2024 and sell it today you would lose (3,367) from holding Diageo PLC ADR or give up 19.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Definitive Healthcare Corp  vs.  Diageo PLC ADR

Definitive Healthcare

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Definitive Healthcare Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in June 2024. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Diageo PLC ADR

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Diageo PLC ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Diageo PLC is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Definitive Healthcare and Diageo PLC

The main advantage of trading using opposite Definitive Healthcare and Diageo PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Definitive Healthcare 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 Definitive Healthcare Corp and Diageo PLC ADR 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.

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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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.