Correlation Between BRF SA and Danone SA

Can any of the company-specific risk be diversified away by investing in both BRF SA and Danone SA 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 Danone SA 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 Danone SA, you can compare the effects of market volatilities on BRF SA and Danone SA 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 Danone SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of BRF SA and Danone SA.

Diversification Opportunities for BRF SA and Danone SA

-0.63

Correlation Coefficient

BRF SA  Danone SA

Excellent diversification

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

Pair Corralation between BRF SA and Danone SA

Given the investment horizon of 90 days BRF SA ADR is expected to under-perform the Danone SA. In addition to that, BRF SA is 1.74 times more volatile than Danone SA. It trades about -0.39 of its total potential returns per unit of risk. Danone SA is currently generating about 0.25 per unit of volatility. If you would invest  6,870  in Danone SA on December 4, 2024 and sell it today you would earn a total of  472.00  from holding Danone SA or generate 6.87% return on investment over 90 days.

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

BRF SA ADR  vs.  Danone SA

BRF SA ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days BRF SA ADR 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 comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Danone SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Danone SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Danone SA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with BRF SA and Danone SA

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

The idea behind BRF SA ADR and Danone SA 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.