Correlation Between Ambev SA and Darden Restaurants

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

Diversification Opportunities for Ambev SA and Darden Restaurants

0.43

Correlation Coefficient

Ambev SA  Darden Restaurants

Very weak diversification

The 3 months correlation between Ambev and Darden is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Ambev SA ADR and Darden Restaurants in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Darden Restaurants 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 Darden Restaurants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Darden Restaurants has no effect on the direction of Ambev SA i.e., Ambev SA and Darden Restaurants go up and down completely randomly.

Pair Corralation between Ambev SA and Darden Restaurants

Given the investment horizon of 90 days Ambev SA ADR is expected to under-perform the Darden Restaurants. In addition to that, Ambev SA is 1.13 times more volatile than Darden Restaurants. It trades about -0.22 of its total potential returns per unit of risk. Darden Restaurants is currently generating about -0.13 per unit of volatility. If you would invest  16,135  in Darden Restaurants on January 25, 2024 and sell it today you would lose (545.00) from holding Darden Restaurants or give up 3.38% of portfolio value over 90 days.

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

Ambev SA ADR  vs.  Darden Restaurants

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.

Darden Restaurants

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Darden Restaurants has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Darden Restaurants is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Ambev SA and Darden Restaurants

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

The idea behind Ambev SA ADR and Darden Restaurants 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.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.