Correlation Between Brown Forman and MGP Ingredients
Can any of the company-specific risk be diversified away by investing in both Brown Forman and MGP Ingredients 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 Brown Forman and MGP Ingredients into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Brown Forman and MGP Ingredients, you can compare the effects of market volatilities on Brown Forman and MGP Ingredients 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 Brown Forman with a short position of MGP Ingredients. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brown Forman and MGP Ingredients.
Diversification Opportunities for Brown Forman and MGP Ingredients
0.85 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Brown and MGP is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Brown Forman and MGP Ingredients in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MGP Ingredients and Brown Forman 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 Brown Forman are associated (or correlated) with MGP Ingredients. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MGP Ingredients has no effect on the direction of Brown Forman i.e., Brown Forman and MGP Ingredients go up and down completely randomly.
Pair Corralation between Brown Forman and MGP Ingredients
Given the investment horizon of 90 days Brown Forman is expected to generate 0.6 times more return on investment than MGP Ingredients. However, Brown Forman is 1.66 times less risky than MGP Ingredients. It trades about -0.11 of its potential returns per unit of risk. MGP Ingredients is currently generating about -0.11 per unit of risk. If you would invest 5,355 in Brown Forman on November 9, 2024 and sell it today you would lose (2,229) from holding Brown Forman or give up 41.62% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Brown Forman vs. MGP Ingredients
Performance |
| Timeline |
| Brown Forman |
| MGP Ingredients |
Brown Forman and MGP Ingredients Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Brown Forman and MGP Ingredients
The main advantage of trading using opposite Brown Forman and MGP Ingredients positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Brown Forman position performs unexpectedly, MGP Ingredients 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 MGP Ingredients will offset losses from the drop in MGP Ingredients' long position.| Brown Forman vs. Pernod Ricard SA | Brown Forman vs. Willamette Valley Vineyards | Brown Forman vs. MGP Ingredients | Brown Forman vs. Brown Forman |
| MGP Ingredients vs. Brown Forman | MGP Ingredients vs. Diageo PLC ADR | MGP Ingredients vs. Brown Forman | MGP Ingredients vs. Constellation Brands Class |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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