Correlation Between Ambev SA and Constellation Brands

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

Diversification Opportunities for Ambev SA and Constellation Brands

0.64

Correlation Coefficient

Ambev SA  Constellation Brands

Poor diversification

The 3 months correlation between Ambev and Constellation is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Ambev SA ADR and Constellation Brands Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Constellation Brands 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 Constellation Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Constellation Brands has no effect on the direction of Ambev SA i.e., Ambev SA and Constellation Brands go up and down completely randomly.

Pair Corralation between Ambev SA and Constellation Brands

Given the investment horizon of 90 days Ambev SA ADR is expected to under-perform the Constellation Brands. In addition to that, Ambev SA is 1.43 times more volatile than Constellation Brands Class. It trades about -0.1 of its total potential returns per unit of risk. Constellation Brands Class is currently generating about -0.13 per unit of volatility. If you would invest  25,375  in Constellation Brands Class on September 21, 2024 and sell it today you would lose (2,670) from holding Constellation Brands Class or give up 10.52% of portfolio value over 90 days.

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

Ambev SA ADR  vs.  Constellation Brands Class

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 latest weak performance, the Stock's technical and fundamental indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Constellation Brands

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Constellation Brands Class has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Ambev SA and Constellation Brands

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

The idea behind Ambev SA ADR and Constellation Brands Class 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.