Correlation Between Ambev SA and West Red
Can any of the company-specific risk be diversified away by investing in both Ambev SA and West Red 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 West Red 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 West Red Lake, you can compare the effects of market volatilities on Ambev SA and West Red 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 West Red. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ambev SA and West Red.
Diversification Opportunities for Ambev SA and West Red
Poor diversification
The 3 months correlation between Ambev and West is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Ambev SA ADR and West Red Lake in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on West Red Lake 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 West Red. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of West Red Lake has no effect on the direction of Ambev SA i.e., Ambev SA and West Red go up and down completely randomly.
Pair Corralation between Ambev SA and West Red
Given the investment horizon of 90 days Ambev SA ADR is expected to generate 0.69 times more return on investment than West Red. However, Ambev SA ADR is 1.45 times less risky than West Red. It trades about 0.12 of its potential returns per unit of risk. West Red Lake is currently generating about -0.03 per unit of risk. If you would invest 222.00 in Ambev SA ADR on September 13, 2024 and sell it today you would earn a total of 10.00 from holding Ambev SA ADR or generate 4.5% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ambev SA ADR vs. West Red Lake
Performance |
| Timeline |
| Ambev SA ADR |
| West Red Lake |
Ambev SA and West Red Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ambev SA and West Red
The main advantage of trading using opposite Ambev SA and West Red positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ambev SA position performs unexpectedly, West Red 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 West Red will offset losses from the drop in West Red's long position.| Ambev SA vs. Fomento Economico Mexicano | Ambev SA vs. Boston Beer | Ambev SA vs. Carlsberg AS | Ambev SA vs. Compania Cervecerias Unidas |
| West Red vs. American Axle Manufacturing | West Red vs. RBC Bearings Incorporated | West Red vs. Toro Co | West Red vs. Brunswick |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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