Correlation Between Ambev SA and Brazil Potash

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

Diversification Opportunities for Ambev SA and Brazil Potash

-0.29

Correlation Coefficient

Ambev SA  Brazil Potash

Very good diversification

The 3 months correlation between Ambev and Brazil is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Ambev SA ADR and Brazil Potash Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brazil Potash Corp 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 Brazil Potash. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brazil Potash Corp has no effect on the direction of Ambev SA i.e., Ambev SA and Brazil Potash go up and down completely randomly.

Pair Corralation between Ambev SA and Brazil Potash

Given the investment horizon of 90 days Ambev SA ADR is expected to generate 0.27 times more return on investment than Brazil Potash. However, Ambev SA ADR is 3.72 times less risky than Brazil Potash. It trades about 0.19 of its potential returns per unit of risk. Brazil Potash Corp is currently generating about -0.18 per unit of risk. If you would invest  192.00  in Ambev SA ADR on December 19, 2024 and sell it today you would earn a total of  43.00  from holding Ambev SA ADR or generate 22.4% return on investment over 90 days.

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

Ambev SA ADR  vs.  Brazil Potash Corp

Ambev SA ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ambev SA ADR are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Ambev SA showed solid returns over the last few months and may actually be approaching a breakup point.

Brazil Potash Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Brazil Potash Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Ambev SA and Brazil Potash

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

The idea behind Ambev SA ADR and Brazil Potash Corp 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 Valuation module to check real value of public entities based on technical and fundamental data.