Correlation Between Willamette Valley and Diageo Plc

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Can any of the company-specific risk be diversified away by investing in both Willamette Valley 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 Willamette Valley and Diageo Plc into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Willamette Valley and Diageo Plc New, you can compare the effects of market volatilities on Willamette Valley 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 Willamette Valley with a short position of Diageo Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of Willamette Valley and Diageo Plc.

Diversification Opportunities for Willamette Valley and Diageo Plc

0.55
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Willamette and Diageo is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Willamette Valley and Diageo Plc New in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diageo Plc New and Willamette Valley 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 Willamette Valley 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 New has no effect on the direction of Willamette Valley i.e., Willamette Valley and Diageo Plc go up and down completely randomly.

Pair Corralation between Willamette Valley and Diageo Plc

Given the investment horizon of 90 days Willamette Valley is expected to under-perform the Diageo Plc. But the stock apears to be less risky and, when comparing its historical volatility, Willamette Valley is 4.83 times less risky than Diageo Plc. The stock trades about -0.02 of its potential returns per unit of risk. The Diageo Plc New is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  4,000  in Diageo Plc New on August 28, 2022 and sell it today you would earn a total of  600.00  from holding Diageo Plc New or generate 15.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy95.45%
ValuesDaily Returns

Willamette Valley  vs.  Diageo Plc New

 Performance (%) 
       Timeline  
Willamette Valley 
Willamette Performance
0 of 100
Over the last 90 days Willamette Valley has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Willamette Valley is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Willamette Price Channel

Diageo Plc New 
Diageo Performance
0 of 100
Over the last 90 days Diageo Plc New has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Diageo Plc is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Diageo Price Channel

Willamette Valley and Diageo Plc Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Willamette Valley and Diageo Plc

The main advantage of trading using opposite Willamette Valley and Diageo Plc positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Willamette Valley 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.
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The idea behind Willamette Valley and Diageo Plc New 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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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.

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