Correlation Between M Dias and Ambev SA

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

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

Diversification Opportunities for M Dias and Ambev SA

0.4

Correlation Coefficient

M Dias  Ambev SA

Very weak diversification

The 3 months correlation between MDIA3 and Ambev is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding M Dias Branco and Ambev SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ambev SA and M Dias 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 M Dias Branco are associated (or correlated) with Ambev SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ambev SA has no effect on the direction of M Dias i.e., M Dias and Ambev SA go up and down completely randomly.

Pair Corralation between M Dias and Ambev SA

Assuming the 90 days trading horizon M Dias is expected to generate 1.01 times less return on investment than Ambev SA. In addition to that, M Dias is 1.76 times more volatile than Ambev SA. It trades about 0.09 of its total potential returns per unit of risk. Ambev SA is currently generating about 0.15 per unit of volatility. If you would invest  1,163  in Ambev SA on December 30, 2024 and sell it today you would earn a total of  180.00  from holding Ambev SA or generate 15.48% return on investment over 90 days.

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

M Dias Branco  vs.  Ambev SA

M Dias Branco

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in M Dias Branco are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, M Dias unveiled solid returns over the last few months and may actually be approaching a breakup point.

Ambev SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ambev SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Ambev SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with M Dias and Ambev SA

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

The idea behind M Dias Branco and Ambev SA 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.