Correlation Between United Breweries and American Homes

Can any of the company-specific risk be diversified away by investing in both United Breweries and American Homes 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 United Breweries and American Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between United Breweries Co and American Homes 4, you can compare the effects of market volatilities on United Breweries and American Homes 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 United Breweries with a short position of American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Breweries and American Homes.

Diversification Opportunities for United Breweries and American Homes

0.44

Correlation Coefficient

United Breweries  American Homes

Very weak diversification

The 3 months correlation between United and American is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding United Breweries Co and American Homes 4 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Homes 4 and United Breweries 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 United Breweries Co are associated (or correlated) with American Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Homes 4 has no effect on the direction of United Breweries i.e., United Breweries and American Homes go up and down completely randomly.

Pair Corralation between United Breweries and American Homes

Assuming the 90 days trading horizon United Breweries is expected to generate 6.32 times less return on investment than American Homes. In addition to that, United Breweries is 1.12 times more volatile than American Homes 4. It trades about 0.01 of its total potential returns per unit of risk. American Homes 4 is currently generating about 0.04 per unit of volatility. If you would invest  2,603  in American Homes 4 on September 24, 2024 and sell it today you would earn a total of  897.00  from holding American Homes 4 or generate 34.46% return on investment over 90 days.

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

United Breweries Co  vs.  American Homes 4

United Breweries

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in United Breweries Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, United Breweries unveiled solid returns over the last few months and may actually be approaching a breakup point.

American Homes 4

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days American Homes 4 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, American Homes is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with United Breweries and American Homes

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

The idea behind United Breweries Co and American Homes 4 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.