Correlation Between Heineken and Budweiser Brewing

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

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

Diversification Opportunities for Heineken and Budweiser Brewing

0.89

Correlation Coefficient

Heineken  Budweiser Brewing

Very poor diversification

The 3 months correlation between Heineken and Budweiser is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Heineken NV and Budweiser Brewing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Budweiser Brewing and Heineken 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 Heineken NV are associated (or correlated) with Budweiser Brewing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Budweiser Brewing has no effect on the direction of Heineken i.e., Heineken and Budweiser Brewing go up and down completely randomly.

Pair Corralation between Heineken and Budweiser Brewing

Assuming the 90 days horizon Heineken is expected to generate 1.22 times less return on investment than Budweiser Brewing. But when comparing it to its historical volatility, Heineken NV is 1.48 times less risky than Budweiser Brewing. It trades about 0.17 of its potential returns per unit of risk. Budweiser Brewing is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  373.00  in Budweiser Brewing on December 22, 2024 and sell it today you would earn a total of  106.00  from holding Budweiser Brewing or generate 28.42% return on investment over 90 days.

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

Heineken NV  vs.  Budweiser Brewing

Heineken NV

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Heineken NV are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward-looking signals, Heineken reported solid returns over the last few months and may actually be approaching a breakup point.

Budweiser Brewing

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Budweiser Brewing are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental drivers, Budweiser Brewing showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Heineken and Budweiser Brewing

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

The idea behind Heineken NV and Budweiser Brewing 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.