Correlation Between Boston Beer and Tenaris SA

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

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

Diversification Opportunities for Boston Beer and Tenaris SA

0.84

Correlation Coefficient

Boston Beer  Tenaris SA

Very poor diversification

The 3 months correlation between Boston and Tenaris is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Boston Beer and Tenaris SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tenaris SA ADR and Boston Beer 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 Boston Beer are associated (or correlated) with Tenaris SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tenaris SA ADR has no effect on the direction of Boston Beer i.e., Boston Beer and Tenaris SA go up and down completely randomly.

Pair Corralation between Boston Beer and Tenaris SA

Considering the 90-day investment horizon Boston Beer is expected to under-perform the Tenaris SA. But the stock apears to be less risky and, when comparing its historical volatility, Boston Beer is 1.06 times less risky than Tenaris SA. The stock trades about -0.13 of its potential returns per unit of risk. The Tenaris SA ADR is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,761  in Tenaris SA ADR on September 27, 2024 and sell it today you would earn a total of  32.00  from holding Tenaris SA ADR or generate 0.85% return on investment over 90 days.

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

Boston Beer  vs.  Tenaris SA ADR

Boston Beer

Risk-Adjusted Performance

5 of 100

Modest

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

Tenaris SA ADR

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tenaris SA ADR are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Tenaris SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Boston Beer and Tenaris SA

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

The idea behind Boston Beer and Tenaris 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.