Correlation Between Diageo PLC and Iconic Brands

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

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

Diversification Opportunities for Diageo PLC and Iconic Brands

0.0

Correlation Coefficient

Diageo PLC  Iconic Brands

Pay attention - limited upside

The 3 months correlation between Diageo and Iconic is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Diageo PLC ADR and Iconic Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iconic Brands and Diageo 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 Diageo PLC ADR are associated (or correlated) with Iconic Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iconic Brands has no effect on the direction of Diageo PLC i.e., Diageo PLC and Iconic Brands go up and down completely randomly.

Pair Corralation between Diageo PLC and Iconic Brands

Considering the 90-day investment horizon Diageo PLC ADR is expected to under-perform the Iconic Brands. But the stock apears to be less risky and, when comparing its historical volatility, Diageo PLC ADR is 95.44 times less risky than Iconic Brands. The stock trades about -0.05 of its potential returns per unit of risk. The Iconic Brands is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  13.00  in Iconic Brands on August 28, 2024 and sell it today you would lose (12.99) from holding Iconic Brands or give up 99.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Diageo PLC ADR  vs.  Iconic Brands

Diageo PLC ADR

Risk-Adjusted Performance

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Very Weak

Over the last 90 days Diageo PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Iconic Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iconic Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Iconic Brands is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Diageo PLC and Iconic Brands

The main advantage of trading using opposite Diageo PLC and Iconic Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diageo PLC position performs unexpectedly, Iconic Brands 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 Iconic Brands will offset losses from the drop in Iconic Brands' long position.

The idea behind Diageo PLC ADR and Iconic Brands 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.