Correlation Between Ambev SA and Fomento Economico

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

Diversification Opportunities for Ambev SA and Fomento Economico

0.94

Correlation Coefficient

Ambev SA  Fomento Economico

Almost no diversification

The 3 months correlation between Ambev and Fomento is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Ambev SA ADR and Fomento Economico Mexicano in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fomento Economico 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 Fomento Economico. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fomento Economico has no effect on the direction of Ambev SA i.e., Ambev SA and Fomento Economico go up and down completely randomly.

Pair Corralation between Ambev SA and Fomento Economico

Given the investment horizon of 90 days Ambev SA ADR is expected to generate 1.11 times more return on investment than Fomento Economico. However, Ambev SA is 1.11 times more volatile than Fomento Economico Mexicano. It trades about 0.2 of its potential returns per unit of risk. Fomento Economico Mexicano is currently generating about 0.18 per unit of risk. If you would invest  183.00  in Ambev SA ADR on December 28, 2024 and sell it today you would earn a total of  45.00  from holding Ambev SA ADR or generate 24.59% return on investment over 90 days.

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

Ambev SA ADR  vs.  Fomento Economico Mexicano

Ambev SA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ambev SA ADR are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical and fundamental indicators, Ambev SA showed solid returns over the last few months and may actually be approaching a breakup point.

Fomento Economico

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fomento Economico Mexicano are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal primary indicators, Fomento Economico showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ambev SA and Fomento Economico

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

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