Correlation Between BRF SA and Branded Legacy

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

By analyzing existing cross correlation between BRF SA ADR and Branded Legacy, you can compare the effects of market volatilities on BRF SA and Branded Legacy 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 BRF SA with a short position of Branded Legacy. Check out your portfolio center. Please also check ongoing floating volatility patterns of BRF SA and Branded Legacy.

Diversification Opportunities for BRF SA and Branded Legacy

0.24

Correlation Coefficient

BRF SA  Branded Legacy

Modest diversification

The 3 months correlation between BRF and Branded is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding BRF SA ADR and Branded Legacy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Branded Legacy and BRF 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 BRF SA ADR are associated (or correlated) with Branded Legacy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Branded Legacy has no effect on the direction of BRF SA i.e., BRF SA and Branded Legacy go up and down completely randomly.

Pair Corralation between BRF SA and Branded Legacy

Given the investment horizon of 90 days BRF SA ADR is expected to generate 0.11 times more return on investment than Branded Legacy. However, BRF SA ADR is 8.87 times less risky than Branded Legacy. It trades about 0.08 of its potential returns per unit of risk. Branded Legacy is currently generating about -0.02 per unit of risk. If you would invest  427.00  in BRF SA ADR on September 12, 2024 and sell it today you would earn a total of  40.00  from holding BRF SA ADR or generate 9.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

BRF SA ADR  vs.  Branded Legacy

BRF SA ADR

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BRF SA ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, BRF SA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Branded Legacy

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with BRF SA and Branded Legacy

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

The idea behind BRF SA ADR and Branded Legacy 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.