Correlation Between Fevertree Drinks and Toro Energy

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

Diversification Opportunities for Fevertree Drinks and Toro Energy

0.4

Correlation Coefficient

Fevertree Drinks  Toro Energy

Very weak diversification

The 3 months correlation between Fevertree and Toro is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Fevertree Drinks Plc and Toro Energy Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Toro Energy Limited 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 Toro Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Toro Energy Limited has no effect on the direction of Fevertree Drinks i.e., Fevertree Drinks and Toro Energy go up and down completely randomly.

Pair Corralation between Fevertree Drinks and Toro Energy

Assuming the 90 days horizon Fevertree Drinks Plc is expected to under-perform the Toro Energy. But the pink sheet apears to be less risky and, when comparing its historical volatility, Fevertree Drinks Plc is 8.93 times less risky than Toro Energy. The pink sheet trades about -0.19 of its potential returns per unit of risk. The Toro Energy Limited is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  20.00  in Toro Energy Limited on October 7, 2024 and sell it today you would lose (2.00) from holding Toro Energy Limited or give up 10.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	90.24%
Values	Daily Returns

Fevertree Drinks Plc  vs.  Toro Energy Limited

Fevertree Drinks Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fevertree Drinks Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Toro Energy Limited

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Toro Energy Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Toro Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fevertree Drinks and Toro Energy

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

The idea behind Fevertree Drinks Plc and Toro Energy 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.