Correlation Between Budweiser Brewing and Tsingtao Brewery

Can any of the company-specific risk be diversified away by investing in both Budweiser Brewing and Tsingtao Brewery 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 Tsingtao Brewery into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Budweiser Brewing and Tsingtao Brewery, you can compare the effects of market volatilities on Budweiser Brewing and Tsingtao Brewery 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 Tsingtao Brewery. Check out your portfolio center. Please also check ongoing floating volatility patterns of Budweiser Brewing and Tsingtao Brewery.

Diversification Opportunities for Budweiser Brewing and Tsingtao Brewery

0.65

Correlation Coefficient

Budweiser Brewing  Tsingtao Brewery

Poor diversification

The 3 months correlation between Budweiser and Tsingtao is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Budweiser Brewing and Tsingtao Brewery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tsingtao Brewery 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 Tsingtao Brewery. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tsingtao Brewery has no effect on the direction of Budweiser Brewing i.e., Budweiser Brewing and Tsingtao Brewery go up and down completely randomly.

Pair Corralation between Budweiser Brewing and Tsingtao Brewery

Assuming the 90 days horizon Budweiser Brewing is expected to generate 1.57 times less return on investment than Tsingtao Brewery. But when comparing it to its historical volatility, Budweiser Brewing is 1.28 times less risky than Tsingtao Brewery. It trades about 0.1 of its potential returns per unit of risk. Tsingtao Brewery is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  626.00  in Tsingtao Brewery on October 4, 2024 and sell it today you would earn a total of  55.00  from holding Tsingtao Brewery or generate 8.79% return on investment over 90 days.

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

Budweiser Brewing  vs.  Tsingtao Brewery

Budweiser Brewing

Risk-Adjusted Performance

0 of 100

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 fragile performance in the last few months, the Stock's fundamental drivers remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Tsingtao Brewery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tsingtao Brewery has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Budweiser Brewing and Tsingtao Brewery

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

The idea behind Budweiser Brewing and Tsingtao Brewery 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.