Correlation Between Brown Forman and Splash Beverage

Can any of the company-specific risk be diversified away by investing in both Brown Forman and Splash Beverage 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 Brown Forman and Splash Beverage into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Brown Forman and Splash Beverage Group, you can compare the effects of market volatilities on Brown Forman and Splash Beverage 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 Brown Forman with a short position of Splash Beverage. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brown Forman and Splash Beverage.

Diversification Opportunities for Brown Forman and Splash Beverage

0.63

Correlation Coefficient

Brown Forman  Splash Beverage

Poor diversification

The 3 months correlation between Brown and Splash is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Brown Forman and Splash Beverage Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Splash Beverage Group and Brown Forman 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 Brown Forman are associated (or correlated) with Splash Beverage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Splash Beverage Group has no effect on the direction of Brown Forman i.e., Brown Forman and Splash Beverage go up and down completely randomly.

Pair Corralation between Brown Forman and Splash Beverage

Given the investment horizon of 90 days Brown Forman is expected to generate 0.44 times more return on investment than Splash Beverage. However, Brown Forman is 2.29 times less risky than Splash Beverage. It trades about -0.01 of its potential returns per unit of risk. Splash Beverage Group is currently generating about -0.15 per unit of risk. If you would invest  4,579  in Brown Forman on September 14, 2024 and sell it today you would lose (121.00) from holding Brown Forman or give up 2.64% of portfolio value over 90 days.

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

Brown Forman  vs.  Splash Beverage Group

Brown Forman

Risk-Adjusted Performance

0 of 100

Very Weak

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

Splash Beverage Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Splash Beverage Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly stable which may send shares a bit higher in January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Brown Forman and Splash Beverage

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

The idea behind Brown Forman and Splash Beverage Group 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..