Correlation Between BUA FOODS and CHAMPION BREWERIES

Can any of the company-specific risk be diversified away by investing in both BUA FOODS and CHAMPION BREWERIES 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 BUA FOODS and CHAMPION BREWERIES into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BUA FOODS PLC and CHAMPION BREWERIES PLC, you can compare the effects of market volatilities on BUA FOODS and CHAMPION BREWERIES 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 BUA FOODS with a short position of CHAMPION BREWERIES. Check out your portfolio center. Please also check ongoing floating volatility patterns of BUA FOODS and CHAMPION BREWERIES.

Diversification Opportunities for BUA FOODS and CHAMPION BREWERIES

0.3

Correlation Coefficient

BUA FOODS  CHAMPION BREWERIES

Weak diversification

The 3 months correlation between BUA and CHAMPION is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding BUA FOODS PLC and CHAMPION BREWERIES PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHAMPION BREWERIES PLC and BUA FOODS 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 BUA FOODS PLC are associated (or correlated) with CHAMPION BREWERIES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHAMPION BREWERIES PLC has no effect on the direction of BUA FOODS i.e., BUA FOODS and CHAMPION BREWERIES go up and down completely randomly.

Pair Corralation between BUA FOODS and CHAMPION BREWERIES

Assuming the 90 days trading horizon BUA FOODS is expected to generate 1.19 times less return on investment than CHAMPION BREWERIES. But when comparing it to its historical volatility, BUA FOODS PLC is 3.41 times less risky than CHAMPION BREWERIES. It trades about 0.23 of its potential returns per unit of risk. CHAMPION BREWERIES PLC is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  400.00  in CHAMPION BREWERIES PLC on October 6, 2024 and sell it today you would earn a total of  19.00  from holding CHAMPION BREWERIES PLC or generate 4.75% return on investment over 90 days.

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

BUA FOODS PLC  vs.  CHAMPION BREWERIES PLC

BUA FOODS PLC

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BUA FOODS PLC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, BUA FOODS is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

CHAMPION BREWERIES PLC

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CHAMPION BREWERIES PLC are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, CHAMPION BREWERIES displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BUA FOODS and CHAMPION BREWERIES

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

The idea behind BUA FOODS PLC and CHAMPION BREWERIES 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 CEOs Directory module to screen CEOs from public companies around the world.