Correlation Between United Breweries and GuocoLand

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

Diversification Opportunities for United Breweries and GuocoLand

-0.1

Correlation Coefficient

United Breweries  GuocoLand

Good diversification

The 3 months correlation between United and GuocoLand is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding United Breweries Co and GuocoLand Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GuocoLand Limited 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 GuocoLand. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GuocoLand Limited has no effect on the direction of United Breweries i.e., United Breweries and GuocoLand go up and down completely randomly.

Pair Corralation between United Breweries and GuocoLand

Assuming the 90 days trading horizon United Breweries Co is expected to generate 3.58 times more return on investment than GuocoLand. However, United Breweries is 3.58 times more volatile than GuocoLand Limited. It trades about 0.24 of its potential returns per unit of risk. GuocoLand Limited is currently generating about -0.07 per unit of risk. If you would invest  1,090  in United Breweries Co on December 22, 2024 and sell it today you would earn a total of  280.00  from holding United Breweries Co or generate 25.69% return on investment over 90 days.

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

United Breweries Co  vs.  GuocoLand Limited

United Breweries

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in United Breweries Co are ranked lower than 18 (%) 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.

GuocoLand Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days GuocoLand Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, GuocoLand is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with United Breweries and GuocoLand

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

The idea behind United Breweries Co and GuocoLand Limited 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.