Correlation Between State Bank and Fevertree Drinks

Can any of the company-specific risk be diversified away by investing in both State Bank and Fevertree Drinks 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 State Bank and Fevertree Drinks into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between State Bank of and Fevertree Drinks Plc, you can compare the effects of market volatilities on State Bank and Fevertree Drinks 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 State Bank with a short position of Fevertree Drinks. Check out your portfolio center. Please also check ongoing floating volatility patterns of State Bank and Fevertree Drinks.

Diversification Opportunities for State Bank and Fevertree Drinks

-0.14

Correlation Coefficient

State Bank  Fevertree Drinks

Good diversification

The 3 months correlation between State and Fevertree is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding State Bank of and Fevertree Drinks Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fevertree Drinks Plc and State Bank 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 State Bank of are associated (or correlated) with Fevertree Drinks. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fevertree Drinks Plc has no effect on the direction of State Bank i.e., State Bank and Fevertree Drinks go up and down completely randomly.

Pair Corralation between State Bank and Fevertree Drinks

Assuming the 90 days trading horizon State Bank of is expected to generate 0.74 times more return on investment than Fevertree Drinks. However, State Bank of is 1.35 times less risky than Fevertree Drinks. It trades about -0.63 of its potential returns per unit of risk. Fevertree Drinks Plc is currently generating about -0.55 per unit of risk. If you would invest  10,160  in State Bank of on October 8, 2024 and sell it today you would lose (890.00) from holding State Bank of or give up 8.76% of portfolio value over 90 days.

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

State Bank of  vs.  Fevertree Drinks Plc

State Bank

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days State Bank of has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, State Bank is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Fevertree Drinks Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fevertree Drinks Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with State Bank and Fevertree Drinks

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

The idea behind State Bank of and Fevertree Drinks Plc 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.