Correlation Between Ambev SA and M Dias

Can any of the company-specific risk be diversified away by investing in both Ambev SA and M Dias 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 M Dias into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ambev SA and M Dias Branco, you can compare the effects of market volatilities on Ambev SA and M Dias 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 M Dias. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ambev SA and M Dias.

Diversification Opportunities for Ambev SA and M Dias

0.4

Correlation Coefficient

Ambev SA  M Dias

Very weak diversification

The 3 months correlation between Ambev and MDIA3 is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Ambev SA and M Dias Branco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on M Dias Branco 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 are associated (or correlated) with M Dias. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of M Dias Branco has no effect on the direction of Ambev SA i.e., Ambev SA and M Dias go up and down completely randomly.

Pair Corralation between Ambev SA and M Dias

Assuming the 90 days trading horizon Ambev SA is expected to generate 0.57 times more return on investment than M Dias. However, Ambev SA is 1.76 times less risky than M Dias. It trades about 0.15 of its potential returns per unit of risk. M Dias Branco is currently generating about 0.09 per unit of risk. If you would invest  1,163  in Ambev SA on December 30, 2024 and sell it today you would earn a total of  180.00  from holding Ambev SA or generate 15.48% return on investment over 90 days.

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

Ambev SA  vs.  M Dias Branco

Ambev SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ambev SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Ambev SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

M Dias Branco

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in M Dias Branco are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, M Dias unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ambev SA and M Dias

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

The idea behind Ambev SA and M Dias Branco 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.