Correlation Between BRF SA and IBERDROLA ADR1

Can any of the company-specific risk be diversified away by investing in both BRF SA and IBERDROLA ADR1 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 IBERDROLA ADR1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BRF SA and IBERDROLA ADR1 EO, you can compare the effects of market volatilities on BRF SA and IBERDROLA ADR1 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 IBERDROLA ADR1. Check out your portfolio center. Please also check ongoing floating volatility patterns of BRF SA and IBERDROLA ADR1.

Diversification Opportunities for BRF SA and IBERDROLA ADR1

-0.67

Correlation Coefficient

BRF SA  IBERDROLA ADR1

Excellent diversification

The 3 months correlation between BRF and IBERDROLA is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding BRF SA and IBERDROLA ADR1 EO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IBERDROLA ADR1 EO 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 are associated (or correlated) with IBERDROLA ADR1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IBERDROLA ADR1 EO has no effect on the direction of BRF SA i.e., BRF SA and IBERDROLA ADR1 go up and down completely randomly.

Pair Corralation between BRF SA and IBERDROLA ADR1

Assuming the 90 days horizon BRF SA is expected to generate 2.0 times more return on investment than IBERDROLA ADR1. However, BRF SA is 2.0 times more volatile than IBERDROLA ADR1 EO. It trades about 0.07 of its potential returns per unit of risk. IBERDROLA ADR1 EO is currently generating about -0.07 per unit of risk. If you would invest  388.00  in BRF SA on September 23, 2024 and sell it today you would earn a total of  48.00  from holding BRF SA or generate 12.37% return on investment over 90 days.

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

BRF SA  vs.  IBERDROLA ADR1 EO

BRF SA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BRF SA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, BRF SA reported solid returns over the last few months and may actually be approaching a breakup point.

IBERDROLA ADR1 EO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IBERDROLA ADR1 EO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with BRF SA and IBERDROLA ADR1

The main advantage of trading using opposite BRF SA and IBERDROLA ADR1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BRF SA position performs unexpectedly, IBERDROLA ADR1 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 IBERDROLA ADR1 will offset losses from the drop in IBERDROLA ADR1's long position.

The idea behind BRF SA and IBERDROLA ADR1 EO 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.