Correlation Between Tsingtao Brewery and Budweiser Brewing

Can any of the company-specific risk be diversified away by investing in both Tsingtao Brewery and Budweiser Brewing 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 Tsingtao Brewery and Budweiser Brewing into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tsingtao Brewery and Budweiser Brewing, you can compare the effects of market volatilities on Tsingtao Brewery and Budweiser Brewing 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 Tsingtao Brewery with a short position of Budweiser Brewing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tsingtao Brewery and Budweiser Brewing.

Diversification Opportunities for Tsingtao Brewery and Budweiser Brewing

0.72

Correlation Coefficient

Tsingtao Brewery  Budweiser Brewing

Poor diversification

The 3 months correlation between Tsingtao and Budweiser is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Tsingtao Brewery and Budweiser Brewing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Budweiser Brewing and Tsingtao Brewery 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 Tsingtao Brewery are associated (or correlated) with Budweiser Brewing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Budweiser Brewing has no effect on the direction of Tsingtao Brewery i.e., Tsingtao Brewery and Budweiser Brewing go up and down completely randomly.

Pair Corralation between Tsingtao Brewery and Budweiser Brewing

Assuming the 90 days horizon Tsingtao Brewery is expected to generate 1.56 times more return on investment than Budweiser Brewing. However, Tsingtao Brewery is 1.56 times more volatile than Budweiser Brewing. It trades about 0.02 of its potential returns per unit of risk. Budweiser Brewing is currently generating about -0.05 per unit of risk. If you would invest  881.00  in Tsingtao Brewery on October 5, 2024 and sell it today you would lose (195.00) from holding Tsingtao Brewery or give up 22.13% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	76.92%
Values	Daily Returns

Tsingtao Brewery  vs.  Budweiser Brewing

Tsingtao Brewery

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tsingtao Brewery has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Budweiser Brewing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Budweiser Brewing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental drivers remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Tsingtao Brewery and Budweiser Brewing

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

The idea behind Tsingtao Brewery and Budweiser Brewing 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.