Correlation Between Budweiser Brewing and Boston Beer

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Can any of the company-specific risk be diversified away by investing in both Budweiser Brewing and Boston Beer 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 Budweiser Brewing and Boston Beer into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Budweiser Brewing and Boston Beer, you can compare the effects of market volatilities on Budweiser Brewing and Boston Beer 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 Budweiser Brewing with a short position of Boston Beer. Check out your portfolio center. Please also check ongoing floating volatility patterns of Budweiser Brewing and Boston Beer.

Diversification Opportunities for Budweiser Brewing and Boston Beer

-0.45
  Correlation Coefficient

Very good diversification

The 3 months correlation between Budweiser and Boston is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Budweiser Brewing and Boston Beer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boston Beer and Budweiser Brewing 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 Budweiser Brewing are associated (or correlated) with Boston Beer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boston Beer has no effect on the direction of Budweiser Brewing i.e., Budweiser Brewing and Boston Beer go up and down completely randomly.

Pair Corralation between Budweiser Brewing and Boston Beer

Assuming the 90 days horizon Budweiser Brewing is expected to under-perform the Boston Beer. In addition to that, Budweiser Brewing is 2.65 times more volatile than Boston Beer. It trades about -0.02 of its total potential returns per unit of risk. Boston Beer is currently generating about 0.11 per unit of volatility. If you would invest  28,153  in Boston Beer on September 5, 2024 and sell it today you would earn a total of  3,149  from holding Boston Beer or generate 11.19% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Budweiser Brewing  vs.  Boston Beer

 Performance 
       Timeline  
Budweiser Brewing 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Budweiser Brewing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest inconsistent performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.
Boston Beer 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Boston Beer are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Boston Beer may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Budweiser Brewing and Boston Beer Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Budweiser Brewing and Boston Beer

The main advantage of trading using opposite Budweiser Brewing and Boston Beer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Budweiser Brewing position performs unexpectedly, Boston Beer 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 Boston Beer will offset losses from the drop in Boston Beer's long position.
The idea behind Budweiser Brewing and Boston Beer 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.

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