Correlation Between Fevertree Drinks and Ambev SA

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

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

Diversification Opportunities for Fevertree Drinks and Ambev SA

0.8

Correlation Coefficient

Fevertree Drinks  Ambev SA

Very poor diversification

The 3 months correlation between Fevertree and Ambev is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Fevertree Drinks Plc and Ambev SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ambev SA ADR and Fevertree Drinks 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 Fevertree Drinks Plc are associated (or correlated) with Ambev SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ambev SA ADR has no effect on the direction of Fevertree Drinks i.e., Fevertree Drinks and Ambev SA go up and down completely randomly.

Pair Corralation between Fevertree Drinks and Ambev SA

Assuming the 90 days horizon Fevertree Drinks Plc is expected to under-perform the Ambev SA. But the pink sheet apears to be less risky and, when comparing its historical volatility, Fevertree Drinks Plc is 1.24 times less risky than Ambev SA. The pink sheet trades about -0.14 of its potential returns per unit of risk. The Ambev SA ADR is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  237.00  in Ambev SA ADR on September 17, 2024 and sell it today you would lose (23.00) from holding Ambev SA ADR or give up 9.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.38%
Values	Daily Returns

Fevertree Drinks Plc  vs.  Ambev SA ADR

Fevertree Drinks Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fevertree Drinks Plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Ambev SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ambev SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Fevertree Drinks and Ambev SA

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

The idea behind Fevertree Drinks Plc and Ambev SA ADR 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.