Correlation Between Treasury Wine and Brown Forman

Can any of the company-specific risk be diversified away by investing in both Treasury Wine and Brown Forman 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 Treasury Wine and Brown Forman into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Treasury Wine Estates and Brown Forman, you can compare the effects of market volatilities on Treasury Wine and Brown Forman 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 Treasury Wine with a short position of Brown Forman. Check out your portfolio center. Please also check ongoing floating volatility patterns of Treasury Wine and Brown Forman.

Diversification Opportunities for Treasury Wine and Brown Forman

0.91

Correlation Coefficient

Treasury Wine  Brown Forman

Almost no diversification

The 3 months correlation between Treasury and Brown is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Treasury Wine Estates and Brown Forman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brown Forman and Treasury Wine 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 Treasury Wine Estates are associated (or correlated) with Brown Forman. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brown Forman has no effect on the direction of Treasury Wine i.e., Treasury Wine and Brown Forman go up and down completely randomly.

Pair Corralation between Treasury Wine and Brown Forman

Assuming the 90 days horizon Treasury Wine Estates is expected to generate 0.69 times more return on investment than Brown Forman. However, Treasury Wine Estates is 1.45 times less risky than Brown Forman. It trades about -0.14 of its potential returns per unit of risk. Brown Forman is currently generating about -0.22 per unit of risk. If you would invest  772.00  in Treasury Wine Estates on October 21, 2024 and sell it today you would lose (102.00) from holding Treasury Wine Estates or give up 13.21% of portfolio value over 90 days.

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

Treasury Wine Estates  vs.  Brown Forman

Treasury Wine Estates

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Treasury Wine Estates has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Brown Forman

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Treasury Wine and Brown Forman

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

The idea behind Treasury Wine Estates and Brown Forman 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.