Correlation Between Brown Forman and Fresh Grapes

Can any of the company-specific risk be diversified away by investing in both Brown Forman and Fresh Grapes 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 Fresh Grapes into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Brown Forman and Fresh Grapes LLC, you can compare the effects of market volatilities on Brown Forman and Fresh Grapes 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 Fresh Grapes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Brown Forman and Fresh Grapes.

Diversification Opportunities for Brown Forman and Fresh Grapes

0.3

Correlation Coefficient

Brown Forman  Fresh Grapes

Weak diversification

The 3 months correlation between Brown and Fresh is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Brown Forman and Fresh Grapes LLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fresh Grapes LLC 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 Fresh Grapes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fresh Grapes LLC has no effect on the direction of Brown Forman i.e., Brown Forman and Fresh Grapes go up and down completely randomly.

Pair Corralation between Brown Forman and Fresh Grapes

Given the investment horizon of 90 days Brown Forman is expected to generate 0.14 times more return on investment than Fresh Grapes. However, Brown Forman is 6.92 times less risky than Fresh Grapes. It trades about -0.12 of its potential returns per unit of risk. Fresh Grapes LLC is currently generating about -0.04 per unit of risk. If you would invest  4,403  in Brown Forman on September 1, 2024 and sell it today you would lose (195.00) from holding Brown Forman or give up 4.43% of portfolio value over 90 days.

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

Brown Forman  vs.  Fresh Grapes LLC

Brown Forman

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brown Forman has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Fresh Grapes LLC

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fresh Grapes LLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Fresh Grapes exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Brown Forman and Fresh Grapes

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

The idea behind Brown Forman and Fresh Grapes LLC 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.