Correlation Between BRF SA and NightFood Holdings

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

Diversification Opportunities for BRF SA and NightFood Holdings

-0.4

Correlation Coefficient

BRF SA  NightFood Holdings

Very good diversification

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

Pair Corralation between BRF SA and NightFood Holdings

Given the investment horizon of 90 days BRF SA ADR is expected to under-perform the NightFood Holdings. But the stock apears to be less risky and, when comparing its historical volatility, BRF SA ADR is 4.93 times less risky than NightFood Holdings. The stock trades about -0.11 of its potential returns per unit of risk. The NightFood Holdings is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  0.65  in NightFood Holdings on December 28, 2024 and sell it today you would earn a total of  0.20  from holding NightFood Holdings or generate 30.77% return on investment over 90 days.

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

BRF SA ADR  vs.  NightFood Holdings

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.

NightFood Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NightFood Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, NightFood Holdings reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BRF SA and NightFood Holdings

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

The idea behind BRF SA ADR and NightFood Holdings 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.

Check out your portfolio center.

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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.