Correlation Between United Breweries and TVS Electronics

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Can any of the company-specific risk be diversified away by investing in both United Breweries and TVS Electronics 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 United Breweries and TVS Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between United Breweries Limited and TVS Electronics Limited, you can compare the effects of market volatilities on United Breweries and TVS Electronics 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 United Breweries with a short position of TVS Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Breweries and TVS Electronics.

Diversification Opportunities for United Breweries and TVS Electronics

0.75
  Correlation Coefficient

Poor diversification

The 3 months correlation between United and TVS is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding United Breweries Limited and TVS Electronics Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TVS Electronics and United Breweries 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 United Breweries Limited are associated (or correlated) with TVS Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TVS Electronics has no effect on the direction of United Breweries i.e., United Breweries and TVS Electronics go up and down completely randomly.

Pair Corralation between United Breweries and TVS Electronics

Assuming the 90 days trading horizon United Breweries is expected to generate 1.87 times less return on investment than TVS Electronics. But when comparing it to its historical volatility, United Breweries Limited is 1.83 times less risky than TVS Electronics. It trades about 0.3 of its potential returns per unit of risk. TVS Electronics Limited is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  36,580  in TVS Electronics Limited on October 8, 2024 and sell it today you would earn a total of  5,710  from holding TVS Electronics Limited or generate 15.61% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy95.0%
ValuesDaily Returns

United Breweries Limited  vs.  TVS Electronics Limited

 Performance 
       Timeline  
United Breweries 

Risk-Adjusted Performance

1 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in United Breweries Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, United Breweries is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.
TVS Electronics 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in TVS Electronics Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, TVS Electronics may actually be approaching a critical reversion point that can send shares even higher in February 2025.

United Breweries and TVS Electronics Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with United Breweries and TVS Electronics

The main advantage of trading using opposite United Breweries and TVS Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if United Breweries position performs unexpectedly, TVS Electronics 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 TVS Electronics will offset losses from the drop in TVS Electronics' long position.
The idea behind United Breweries Limited and TVS Electronics Limited 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 Commodity Directory module to find actively traded commodities issued by global exchanges.

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