Correlation Between Lifeway Foods and BRF SA

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

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

Diversification Opportunities for Lifeway Foods and BRF SA

-0.24

Correlation Coefficient

Lifeway Foods  BRF SA

Very good diversification

The 3 months correlation between Lifeway and BRF is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding Lifeway Foods 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 Lifeway Foods 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 Lifeway Foods 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 Lifeway Foods i.e., Lifeway Foods and BRF SA go up and down completely randomly.

Pair Corralation between Lifeway Foods and BRF SA

Given the investment horizon of 90 days Lifeway Foods is expected to generate 2.25 times more return on investment than BRF SA. However, Lifeway Foods is 2.25 times more volatile than BRF SA ADR. It trades about 0.07 of its potential returns per unit of risk. BRF SA ADR is currently generating about 0.11 per unit of risk. If you would invest  959.00  in Lifeway Foods on September 12, 2024 and sell it today you would earn a total of  1,491  from holding Lifeway Foods or generate 155.47% return on investment over 90 days.

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

Lifeway Foods  vs.  BRF SA ADR

Lifeway Foods

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lifeway Foods are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Lifeway Foods showed solid returns over the last few months and may actually be approaching a breakup point.

BRF SA ADR

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BRF SA ADR are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, BRF SA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Lifeway Foods and BRF SA

The main advantage of trading using opposite Lifeway Foods and BRF SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lifeway Foods 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 Lifeway Foods 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.