Correlation Between Anheuser Busch and CBOE Volatility

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

By analyzing existing cross correlation between Anheuser Busch Inbev and CBOE Volatility Index, you can compare the effects of market volatilities on Anheuser Busch and CBOE Volatility 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 Anheuser Busch with a short position of CBOE Volatility. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anheuser Busch and CBOE Volatility.

Diversification Opportunities for Anheuser Busch and CBOE Volatility

0.75

Correlation Coefficient

Anheuser Busch  CBOE Volatility

Poor diversification

The 3 months correlation between Anheuser and CBOE is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Anheuser Busch Inbev and CBOE Volatility Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CBOE Volatility Index and Anheuser Busch 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 Anheuser Busch Inbev are associated (or correlated) with CBOE Volatility. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CBOE Volatility Index has no effect on the direction of Anheuser Busch i.e., Anheuser Busch and CBOE Volatility go up and down completely randomly.

Pair Corralation between Anheuser Busch and CBOE Volatility

Considering the 90-day investment horizon Anheuser Busch Inbev is expected to under-perform the CBOE Volatility. But the stock apears to be less risky and, when comparing its historical volatility, Anheuser Busch Inbev is 4.99 times less risky than CBOE Volatility. The stock trades about -0.21 of its potential returns per unit of risk. The CBOE Volatility Index is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,823  in CBOE Volatility Index on September 18, 2024 and sell it today you would lose (354.00) from holding CBOE Volatility Index or give up 19.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Anheuser Busch Inbev  vs.  CBOE Volatility Index

Pair Trading with Anheuser Busch and CBOE Volatility

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

The idea behind Anheuser Busch Inbev and CBOE Volatility Index 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.