Correlation Between United Breweries and Vulcan Materials

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

By analyzing existing cross correlation between United Breweries Co and Vulcan Materials, you can compare the effects of market volatilities on United Breweries and Vulcan Materials 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 United Breweries with a short position of Vulcan Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of United Breweries and Vulcan Materials.

Diversification Opportunities for United Breweries and Vulcan Materials

0.5

Correlation Coefficient

United Breweries  Vulcan Materials

Very weak diversification

The 3 months correlation between United and Vulcan is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding United Breweries Co and Vulcan Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vulcan Materials and United Breweries 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 United Breweries Co are associated (or correlated) with Vulcan Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vulcan Materials has no effect on the direction of United Breweries i.e., United Breweries and Vulcan Materials go up and down completely randomly.

Pair Corralation between United Breweries and Vulcan Materials

Assuming the 90 days trading horizon United Breweries is expected to generate 1.11 times less return on investment than Vulcan Materials. But when comparing it to its historical volatility, United Breweries Co is 1.22 times less risky than Vulcan Materials. It trades about 0.12 of its potential returns per unit of risk. Vulcan Materials is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  22,159  in Vulcan Materials on September 26, 2024 and sell it today you would earn a total of  2,841  from holding Vulcan Materials or generate 12.82% return on investment over 90 days.

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

United Breweries Co  vs.  Vulcan Materials

United Breweries

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in United Breweries Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, United Breweries may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Vulcan Materials

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vulcan Materials are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Vulcan Materials reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with United Breweries and Vulcan Materials

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

The idea behind United Breweries Co and Vulcan Materials 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.