Correlation Between JBS SA and BRF SA

Can any of the company-specific risk be diversified away by investing in both JBS 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 JBS 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 JBS SA and BRF SA ADR, you can compare the effects of market volatilities on JBS 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 JBS SA with a short position of BRF SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of JBS SA and BRF SA.

Diversification Opportunities for JBS SA and BRF SA

0.86

Correlation Coefficient

JBS SA  BRF SA

Very poor diversification

The 3 months correlation between JBS and BRF is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding JBS 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 JBS 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 JBS 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 JBS SA i.e., JBS SA and BRF SA go up and down completely randomly.

Pair Corralation between JBS SA and BRF SA

Assuming the 90 days horizon JBS SA is expected to generate 1.42 times more return on investment than BRF SA. However, JBS SA is 1.42 times more volatile than BRF SA ADR. It trades about -0.08 of its potential returns per unit of risk. BRF SA ADR is currently generating about -0.3 per unit of risk. If you would invest  1,265  in JBS SA on October 11, 2024 and sell it today you would lose (96.00) from holding JBS SA or give up 7.59% of portfolio value over 90 days.

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

JBS SA  vs.  BRF SA ADR

JBS SA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in JBS SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, JBS SA is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

BRF SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BRF SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. 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 JBS SA and BRF SA

The main advantage of trading using opposite JBS SA and BRF SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if JBS 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 JBS 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.