Correlation Between Fevertree Drinks and Ambev SA

Can any of the company-specific risk be diversified away by investing in both Fevertree Drinks and Ambev SA 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 Fevertree Drinks and Ambev SA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Fevertree Drinks Plc and Ambev SA ADR, you can compare the effects of market volatilities on Fevertree Drinks and Ambev SA 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 Fevertree Drinks with a short position of Ambev SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fevertree Drinks and Ambev SA.

Diversification Opportunities for Fevertree Drinks and Ambev SA

0.65

Correlation Coefficient

Fevertree Drinks  Ambev SA

Poor diversification

The 3 months correlation between Fevertree and Ambev is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Fevertree Drinks Plc and Ambev SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ambev SA ADR and Fevertree Drinks 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 Fevertree Drinks Plc are associated (or correlated) with Ambev SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ambev SA ADR has no effect on the direction of Fevertree Drinks i.e., Fevertree Drinks and Ambev SA go up and down completely randomly.

Pair Corralation between Fevertree Drinks and Ambev SA

Assuming the 90 days horizon Fevertree Drinks Plc is expected to generate 2.12 times more return on investment than Ambev SA. However, Fevertree Drinks is 2.12 times more volatile than Ambev SA ADR. It trades about 0.11 of its potential returns per unit of risk. Ambev SA ADR is currently generating about 0.21 per unit of risk. If you would invest  839.00  in Fevertree Drinks Plc on December 27, 2024 and sell it today you would earn a total of  195.00  from holding Fevertree Drinks Plc or generate 23.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Fevertree Drinks Plc  vs.  Ambev SA ADR

Fevertree Drinks Plc

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fevertree Drinks Plc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Fevertree Drinks reported solid returns over the last few months and may actually be approaching a breakup point.

Ambev SA ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ambev SA ADR are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Ambev SA showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fevertree Drinks and Ambev SA

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

The idea behind Fevertree Drinks Plc and Ambev SA ADR 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.