Correlation Between Ambev SA and BG Foods

Can any of the company-specific risk be diversified away by investing in both Ambev 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 Ambev 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 Ambev SA ADR and BG Foods, you can compare the effects of market volatilities on Ambev 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 Ambev SA with a short position of BG Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ambev SA and BG Foods.

Diversification Opportunities for Ambev SA and BG Foods

-0.48

Correlation Coefficient

Ambev SA  BG Foods

Very good diversification

The 3 months correlation between Ambev and BGS is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Ambev 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 Ambev 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 Ambev 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 Ambev SA i.e., Ambev SA and BG Foods go up and down completely randomly.

Pair Corralation between Ambev SA and BG Foods

Given the investment horizon of 90 days Ambev SA ADR is expected to generate 0.51 times more return on investment than BG Foods. However, Ambev SA ADR is 1.96 times less risky than BG Foods. It trades about -0.03 of its potential returns per unit of risk. BG Foods is currently generating about -0.03 per unit of risk. If you would invest  265.00  in Ambev SA ADR on January 26, 2024 and sell it today you would lose (33.00) from holding Ambev SA ADR or give up 12.45% of portfolio value over 90 days.

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

Ambev SA ADR  vs.  BG Foods

Ambev SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ambev SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly stable which may send shares a bit higher in May 2024. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

BG Foods

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BG Foods are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, BG Foods may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Ambev SA and BG Foods

The main advantage of trading using opposite Ambev SA and BG Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ambev 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.

The idea behind Ambev SA ADR and BG Foods 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.