Correlation Between East Africa and Boston Beer

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

By analyzing existing cross correlation between East Africa Metals and Boston Beer, you can compare the effects of market volatilities on East Africa and Boston Beer 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 East Africa with a short position of Boston Beer. Check out your portfolio center. Please also check ongoing floating volatility patterns of East Africa and Boston Beer.

Diversification Opportunities for East Africa and Boston Beer

-0.65

Correlation Coefficient

East Africa  Boston Beer

Excellent diversification

The 3 months correlation between East and Boston is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding East Africa Metals and Boston Beer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boston Beer and East Africa 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 East Africa Metals are associated (or correlated) with Boston Beer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boston Beer has no effect on the direction of East Africa i.e., East Africa and Boston Beer go up and down completely randomly.

Pair Corralation between East Africa and Boston Beer

Assuming the 90 days horizon East Africa Metals is expected to under-perform the Boston Beer. In addition to that, East Africa is 1.8 times more volatile than Boston Beer. It trades about -0.16 of its total potential returns per unit of risk. Boston Beer is currently generating about 0.13 per unit of volatility. If you would invest  27,458  in Boston Beer on September 21, 2024 and sell it today you would earn a total of  3,401  from holding Boston Beer or generate 12.39% return on investment over 90 days.

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

East Africa Metals  vs.  Boston Beer

East Africa Metals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days East Africa Metals has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's primary indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Boston Beer

Risk-Adjusted Performance

10 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Boston Beer are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Boston Beer may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with East Africa and Boston Beer

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

The idea behind East Africa Metals and Boston Beer 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.