Correlation Between Nates Food and Ambev SA

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

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

Diversification Opportunities for Nates Food and Ambev SA

0.08

Correlation Coefficient

Nates Food  Ambev SA

Significant diversification

The 3 months correlation between Nates and Ambev is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Nates Food Co and Ambev SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ambev SA ADR and Nates Food 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 Nates Food Co 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 ADR has no effect on the direction of Nates Food i.e., Nates Food and Ambev SA go up and down completely randomly.

Pair Corralation between Nates Food and Ambev SA

Given the investment horizon of 90 days Nates Food Co is expected to generate 105.24 times more return on investment than Ambev SA. However, Nates Food is 105.24 times more volatile than Ambev SA ADR. It trades about 0.17 of its potential returns per unit of risk. Ambev SA ADR is currently generating about -0.02 per unit of risk. If you would invest  0.04  in Nates Food Co on October 26, 2024 and sell it today you would lose (0.03) from holding Nates Food Co or give up 75.0% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

Nates Food Co  vs.  Ambev SA ADR

Nates Food

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Nates Food Co are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile primary indicators, Nates Food exhibited solid returns over the last few months and may actually be approaching a breakup point.

Ambev SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ambev SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Nates Food and Ambev SA

The main advantage of trading using opposite Nates Food and Ambev SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nates Food 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 Nates Food Co and Ambev 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.