Correlation Between United Breweries and LOREAL ADR

Can any of the company-specific risk be diversified away by investing in both United Breweries and LOREAL ADR 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 LOREAL ADR 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 LOREAL ADR 15EO, you can compare the effects of market volatilities on United Breweries and LOREAL ADR 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 LOREAL ADR. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Breweries and LOREAL ADR.

Diversification Opportunities for United Breweries and LOREAL ADR

0.19

Correlation Coefficient

United Breweries  LOREAL ADR

Average diversification

The 3 months correlation between United and LOREAL is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding United Breweries Co and LOREAL ADR 15EO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LOREAL ADR 15EO 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 LOREAL ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LOREAL ADR 15EO has no effect on the direction of United Breweries i.e., United Breweries and LOREAL ADR go up and down completely randomly.

Pair Corralation between United Breweries and LOREAL ADR

Assuming the 90 days trading horizon United Breweries Co is expected to generate 0.75 times more return on investment than LOREAL ADR. However, United Breweries Co is 1.34 times less risky than LOREAL ADR. It trades about 0.23 of its potential returns per unit of risk. LOREAL ADR 15EO is currently generating about 0.05 per unit of risk. If you would invest  1,060  in United Breweries Co on December 2, 2024 and sell it today you would earn a total of  250.00  from holding United Breweries Co or generate 23.58% return on investment over 90 days.

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

United Breweries Co  vs.  LOREAL ADR 15EO

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 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, United Breweries unveiled solid returns over the last few months and may actually be approaching a breakup point.

LOREAL ADR 15EO

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in LOREAL ADR 15EO are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, LOREAL ADR may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with United Breweries and LOREAL ADR

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

The idea behind United Breweries Co and LOREAL ADR 15EO 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.