Correlation Between BRF SA and Danone SA

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

By analyzing existing cross correlation between BRF SA ADR and Danone SA, you can compare the effects of market volatilities on BRF SA and Danone SA 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 BRF SA with a short position of Danone SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of BRF SA and Danone SA.

Diversification Opportunities for BRF SA and Danone SA

-0.2

Correlation Coefficient

BRF SA  Danone SA

Good diversification

The 3 months correlation between BRF and Danone is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding BRF SA ADR and Danone SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danone SA and BRF 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 BRF SA ADR are associated (or correlated) with Danone SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Danone SA has no effect on the direction of BRF SA i.e., BRF SA and Danone SA go up and down completely randomly.

Pair Corralation between BRF SA and Danone SA

Given the investment horizon of 90 days BRF SA ADR is expected to generate 2.11 times more return on investment than Danone SA. However, BRF SA is 2.11 times more volatile than Danone SA. It trades about 0.05 of its potential returns per unit of risk. Danone SA is currently generating about -0.05 per unit of risk. If you would invest  443.00  in BRF SA ADR on September 20, 2024 and sell it today you would earn a total of  24.00  from holding BRF SA ADR or generate 5.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

BRF SA ADR  vs.  Danone SA

BRF SA ADR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BRF SA ADR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, BRF SA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Danone SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Danone SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Danone SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BRF SA and Danone SA

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

The idea behind BRF SA ADR and Danone SA 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.