Correlation Between Danone SA and BRF SA

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

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

Diversification Opportunities for Danone SA and BRF SA

-0.2

Correlation Coefficient

Danone SA  BRF SA

Good diversification

The 3 months correlation between Danone and BRF is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Danone SA and BRF SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRF SA ADR and Danone SA 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 Danone SA are associated (or correlated) with BRF SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRF SA ADR has no effect on the direction of Danone SA i.e., Danone SA and BRF SA go up and down completely randomly.

Pair Corralation between Danone SA and BRF SA

Assuming the 90 days horizon Danone SA is expected to generate 12.51 times less return on investment than BRF SA. But when comparing it to its historical volatility, Danone SA is 3.95 times less risky than BRF SA. It trades about 0.06 of its potential returns per unit of risk. BRF SA ADR is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  403.00  in BRF SA ADR on September 19, 2024 and sell it today you would earn a total of  44.00  from holding BRF SA ADR or generate 10.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Danone SA  vs.  BRF SA ADR

Danone SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

BRF SA ADR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BRF SA ADR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, BRF SA 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 Danone SA and BRF SA

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

The idea behind Danone SA and BRF 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.