Correlation Between Ambev SA and Compania Cervecerias

Can any of the company-specific risk be diversified away by investing in both Ambev SA and Compania Cervecerias 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 Compania Cervecerias 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 Compania Cervecerias Unidas, you can compare the effects of market volatilities on Ambev SA and Compania Cervecerias 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 Compania Cervecerias. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ambev SA and Compania Cervecerias.

Diversification Opportunities for Ambev SA and Compania Cervecerias

-0.37

Correlation Coefficient

Ambev SA  Compania Cervecerias

Very good diversification

The 3 months correlation between Ambev and Compania is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Ambev SA ADR and Compania Cervecerias Unidas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compania Cervecerias 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 Compania Cervecerias. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compania Cervecerias has no effect on the direction of Ambev SA i.e., Ambev SA and Compania Cervecerias go up and down completely randomly.

Pair Corralation between Ambev SA and Compania Cervecerias

Given the investment horizon of 90 days Ambev SA ADR is expected to under-perform the Compania Cervecerias. In addition to that, Ambev SA is 1.01 times more volatile than Compania Cervecerias Unidas. It trades about -0.03 of its total potential returns per unit of risk. Compania Cervecerias Unidas is currently generating about 0.03 per unit of volatility. If you would invest  1,137  in Compania Cervecerias Unidas on November 28, 2024 and sell it today you would earn a total of  161.00  from holding Compania Cervecerias Unidas or generate 14.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.69%
Values	Daily Returns

Ambev SA ADR  vs.  Compania Cervecerias Unidas

Ambev SA ADR

Risk-Adjusted Performance

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.

Compania Cervecerias

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compania Cervecerias Unidas are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating fundamental indicators, Compania Cervecerias unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ambev SA and Compania Cervecerias

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

The idea behind Ambev SA ADR and Compania Cervecerias Unidas 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.