Correlation Between CBOE Crude and Ambev SA

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

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

Diversification Opportunities for CBOE Crude and Ambev SA

0.57

Correlation Coefficient

CBOE Crude  Ambev SA

Very weak diversification

The 3 months correlation between CBOE and Ambev is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding CBOE Crude Oil 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 CBOE Crude 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 CBOE Crude Oil 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 CBOE Crude i.e., CBOE Crude and Ambev SA go up and down completely randomly.

Pair Corralation between CBOE Crude and Ambev SA

Assuming the 90 days trading horizon CBOE Crude Oil is expected to under-perform the Ambev SA. In addition to that, CBOE Crude is 3.6 times more volatile than Ambev SA ADR. It trades about -0.11 of its total potential returns per unit of risk. Ambev SA ADR is currently generating about -0.2 per unit of volatility. If you would invest  234.00  in Ambev SA ADR on October 3, 2024 and sell it today you would lose (49.00) from holding Ambev SA ADR or give up 20.94% of portfolio value over 90 days.

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

CBOE Crude Oil  vs.  Ambev SA ADR

Pair Trading with CBOE Crude and Ambev SA

The main advantage of trading using opposite CBOE Crude and Ambev SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CBOE Crude 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 CBOE Crude Oil 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.