Correlation Between Big 5 and Fevertree Drinks

Can any of the company-specific risk be diversified away by investing in both Big 5 and Fevertree Drinks 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 Big 5 and Fevertree Drinks into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Big 5 Sporting and Fevertree Drinks PLC, you can compare the effects of market volatilities on Big 5 and Fevertree Drinks 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 Big 5 with a short position of Fevertree Drinks. Check out your portfolio center. Please also check ongoing floating volatility patterns of Big 5 and Fevertree Drinks.

Diversification Opportunities for Big 5 and Fevertree Drinks

-0.4

Correlation Coefficient

Big 5  Fevertree Drinks

Very good diversification

The 3 months correlation between Big and Fevertree is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Big 5 Sporting and Fevertree Drinks PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fevertree Drinks PLC and Big 5 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 Big 5 Sporting are associated (or correlated) with Fevertree Drinks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fevertree Drinks PLC has no effect on the direction of Big 5 i.e., Big 5 and Fevertree Drinks go up and down completely randomly.

Pair Corralation between Big 5 and Fevertree Drinks

Assuming the 90 days horizon Big 5 Sporting is expected to under-perform the Fevertree Drinks. In addition to that, Big 5 is 2.29 times more volatile than Fevertree Drinks PLC. It trades about -0.05 of its total potential returns per unit of risk. Fevertree Drinks PLC is currently generating about -0.02 per unit of volatility. If you would invest  875.00  in Fevertree Drinks PLC on December 4, 2024 and sell it today you would lose (60.00) from holding Fevertree Drinks PLC or give up 6.86% of portfolio value over 90 days.

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

Big 5 Sporting  vs.  Fevertree Drinks PLC

Big 5 Sporting

Risk-Adjusted Performance

Very Weak

Over the last 90 days Big 5 Sporting has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Fevertree Drinks PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fevertree Drinks PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Fevertree Drinks is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Big 5 and Fevertree Drinks

The main advantage of trading using opposite Big 5 and Fevertree Drinks positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Big 5 position performs unexpectedly, Fevertree Drinks 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 Fevertree Drinks will offset losses from the drop in Fevertree Drinks' long position.

The idea behind Big 5 Sporting and Fevertree Drinks PLC 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.