Correlation Between Compania Cervecerias and Treehouse Foods

Can any of the company-specific risk be diversified away by investing in both Compania Cervecerias and Treehouse 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 Compania Cervecerias and Treehouse Foods into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Compania Cervecerias Unidas and Treehouse Foods, you can compare the effects of market volatilities on Compania Cervecerias and Treehouse 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 Compania Cervecerias with a short position of Treehouse Foods. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compania Cervecerias and Treehouse Foods.

Diversification Opportunities for Compania Cervecerias and Treehouse Foods

0.26

Correlation Coefficient

Compania Cervecerias  Treehouse Foods

Modest diversification

The 3 months correlation between Compania and Treehouse is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Compania Cervecerias Unidas and Treehouse Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Treehouse Foods and Compania Cervecerias 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 Compania Cervecerias Unidas are associated (or correlated) with Treehouse Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Treehouse Foods has no effect on the direction of Compania Cervecerias i.e., Compania Cervecerias and Treehouse Foods go up and down completely randomly.

Pair Corralation between Compania Cervecerias and Treehouse Foods

Considering the 90-day investment horizon Compania Cervecerias Unidas is expected to generate 1.04 times more return on investment than Treehouse Foods. However, Compania Cervecerias is 1.04 times more volatile than Treehouse Foods. It trades about 0.13 of its potential returns per unit of risk. Treehouse Foods is currently generating about 0.12 per unit of risk. If you would invest  1,183  in Compania Cervecerias Unidas on March 18, 2024 and sell it today you would earn a total of  561.00  from holding Compania Cervecerias Unidas or generate 47.42% return on investment over 90 days.

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

Compania Cervecerias Unidas  vs.  Treehouse Foods

Compania Cervecerias

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Compania Cervecerias Unidas are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, Compania Cervecerias unveiled solid returns over the last few months and may actually be approaching a breakup point.

Treehouse Foods

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Treehouse Foods are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical indicators, Treehouse Foods unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Compania Cervecerias and Treehouse Foods

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

The idea behind Compania Cervecerias Unidas and Treehouse 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.