Correlation Between Ambev SA and Analog Devices

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

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

Diversification Opportunities for Ambev SA and Analog Devices

0.47

Correlation Coefficient

Ambev SA  Analog Devices

Very weak diversification

The 3 months correlation between Ambev and Analog is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Ambev SA ADR and Analog Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Analog Devices and Ambev SA 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 Ambev SA ADR are associated (or correlated) with Analog Devices. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Analog Devices has no effect on the direction of Ambev SA i.e., Ambev SA and Analog Devices go up and down completely randomly.

Pair Corralation between Ambev SA and Analog Devices

Given the investment horizon of 90 days Ambev SA ADR is expected to under-perform the Analog Devices. But the stock apears to be less risky and, when comparing its historical volatility, Ambev SA ADR is 1.17 times less risky than Analog Devices. The stock trades about -0.02 of its potential returns per unit of risk. The Analog Devices is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  17,001  in Analog Devices on September 3, 2024 and sell it today you would earn a total of  4,804  from holding Analog Devices or generate 28.26% return on investment over 90 days.

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

Ambev SA ADR  vs.  Analog Devices

Ambev SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ambev SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, Ambev SA is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Analog Devices

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Analog Devices has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Analog Devices is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Ambev SA and Analog Devices

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

The idea behind Ambev SA ADR and Analog Devices 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.