Correlation Between Ambev SA and BorgWarner

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

Diversification Opportunities for Ambev SA and BorgWarner

0.18

Correlation Coefficient

Ambev SA  BorgWarner

Average diversification

The 3 months correlation between Ambev and BorgWarner is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Ambev SA ADR and BorgWarner in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BorgWarner 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 BorgWarner. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BorgWarner has no effect on the direction of Ambev SA i.e., Ambev SA and BorgWarner go up and down completely randomly.

Pair Corralation between Ambev SA and BorgWarner

Given the investment horizon of 90 days Ambev SA ADR is expected to under-perform the BorgWarner. But the stock apears to be less risky and, when comparing its historical volatility, Ambev SA ADR is 1.36 times less risky than BorgWarner. The stock trades about -0.03 of its potential returns per unit of risk. The BorgWarner is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,345  in BorgWarner on September 4, 2024 and sell it today you would earn a total of  87.00  from holding BorgWarner or generate 2.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Ambev SA ADR  vs.  BorgWarner

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 fairly stable technical and fundamental indicators, Ambev SA is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

BorgWarner

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BorgWarner are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, BorgWarner is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Ambev SA and BorgWarner

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

The idea behind Ambev SA ADR and BorgWarner 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.