Correlation Between BUA FOODS and INTERNATIONAL BREWERIES

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

Diversification Opportunities for BUA FOODS and INTERNATIONAL BREWERIES

0.8

Correlation Coefficient

BUA FOODS  INTERNATIONAL BREWERIES

Very poor diversification

The 3 months correlation between BUA and INTERNATIONAL is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding BUA FOODS PLC and INTERNATIONAL BREWERIES PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INTERNATIONAL BREWERIES 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 INTERNATIONAL BREWERIES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INTERNATIONAL BREWERIES has no effect on the direction of BUA FOODS i.e., BUA FOODS and INTERNATIONAL BREWERIES go up and down completely randomly.

Pair Corralation between BUA FOODS and INTERNATIONAL BREWERIES

Assuming the 90 days trading horizon BUA FOODS PLC is expected to generate 0.39 times more return on investment than INTERNATIONAL BREWERIES. However, BUA FOODS PLC is 2.54 times less risky than INTERNATIONAL BREWERIES. It trades about 0.24 of its potential returns per unit of risk. INTERNATIONAL BREWERIES PLC is currently generating about 0.04 per unit of risk. If you would invest  7,450  in BUA FOODS PLC on October 21, 2024 and sell it today you would earn a total of  34,050  from holding BUA FOODS PLC or generate 457.05% return on investment over 90 days.

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

BUA FOODS PLC  vs.  INTERNATIONAL BREWERIES PLC

BUA FOODS PLC

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BUA FOODS PLC are ranked lower than 9 (%) 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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

INTERNATIONAL BREWERIES

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with BUA FOODS and INTERNATIONAL BREWERIES

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

The idea behind BUA FOODS PLC and INTERNATIONAL 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.