Correlation Between BRF SA and BG Foods
Can any of the company-specific risk be diversified away by investing in both BRF SA and BG Foods 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 BRF SA and BG Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BRF SA ADR and BG Foods, you can compare the effects of market volatilities on BRF SA and BG Foods 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 BRF SA with a short position of BG Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of BRF SA and BG Foods.
Diversification Opportunities for BRF SA and BG Foods
Poor diversification
The 3 months correlation between BRF and BGS is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding BRF SA ADR and BG Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BG Foods and BRF SA 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 BRF SA ADR are associated (or correlated) with BG Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BG Foods has no effect on the direction of BRF SA i.e., BRF SA and BG Foods go up and down completely randomly.
Pair Corralation between BRF SA and BG Foods
Given the investment horizon of 90 days BRF SA ADR is expected to under-perform the BG Foods. In addition to that, BRF SA is 1.9 times more volatile than BG Foods. It trades about -0.04 of its total potential returns per unit of risk. BG Foods is currently generating about -0.06 per unit of volatility. If you would invest 1,083 in BG Foods on January 20, 2024 and sell it today you would lose (25.00) from holding BG Foods or give up 2.31% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 95.65% |
Values | Daily Returns |
BRF SA ADR vs. BG Foods
Performance |
Timeline |
BRF SA ADR |
BG Foods |
BRF SA and BG Foods Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with BRF SA and BG Foods
The main advantage of trading using opposite BRF SA and BG Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BRF SA position performs unexpectedly, BG Foods 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 BG Foods will offset losses from the drop in BG Foods' long position.BRF SA vs. Green Globe International | BRF SA vs. Greenlane Holdings | BRF SA vs. 22nd Century Group | BRF SA vs. 1606 Corp |
BG Foods vs. Green Globe International | BG Foods vs. Greenlane Holdings | BG Foods vs. 22nd Century Group | BG Foods vs. 1606 Corp |
Check out your portfolio center.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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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