Correlation Between Ambev SA and DIAMONDBACK

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

Diversification Opportunities for Ambev SA and DIAMONDBACK

0.02

Correlation Coefficient

Ambev SA  DIAMONDBACK

Significant diversification

The 3 months correlation between Ambev and DIAMONDBACK is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Ambev SA ADR and DIAMONDBACK ENERGY INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DIAMONDBACK ENERGY INC 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 DIAMONDBACK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DIAMONDBACK ENERGY INC has no effect on the direction of Ambev SA i.e., Ambev SA and DIAMONDBACK go up and down completely randomly.

Pair Corralation between Ambev SA and DIAMONDBACK

Given the investment horizon of 90 days Ambev SA ADR is expected to generate 4.73 times more return on investment than DIAMONDBACK. However, Ambev SA is 4.73 times more volatile than DIAMONDBACK ENERGY INC. It trades about -0.01 of its potential returns per unit of risk. DIAMONDBACK ENERGY INC is currently generating about -0.12 per unit of risk. If you would invest  214.00  in Ambev SA ADR on December 4, 2024 and sell it today you would lose (4.03) from holding Ambev SA ADR or give up 1.88% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	91.67%
Values	Daily Returns

Ambev SA ADR  vs.  DIAMONDBACK ENERGY INC

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.

DIAMONDBACK ENERGY INC

Risk-Adjusted Performance

Very Weak

Over the last 90 days DIAMONDBACK ENERGY INC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, DIAMONDBACK is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ambev SA and DIAMONDBACK

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

The idea behind Ambev SA ADR and DIAMONDBACK ENERGY INC 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.