Correlation Between Tenaris SA and Compania Cervecerias

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

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

Diversification Opportunities for Tenaris SA and Compania Cervecerias

0.44

Correlation Coefficient

Tenaris SA  Compania Cervecerias

Very weak diversification

The 3 months correlation between Tenaris and Compania is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Tenaris SA ADR and Compania Cervecerias Unidas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compania Cervecerias and Tenaris 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 Tenaris SA ADR are associated (or correlated) with Compania Cervecerias. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compania Cervecerias has no effect on the direction of Tenaris SA i.e., Tenaris SA and Compania Cervecerias go up and down completely randomly.

Pair Corralation between Tenaris SA and Compania Cervecerias

Allowing for the 90-day total investment horizon Tenaris SA ADR is expected to generate 0.97 times more return on investment than Compania Cervecerias. However, Tenaris SA ADR is 1.03 times less risky than Compania Cervecerias. It trades about 0.32 of its potential returns per unit of risk. Compania Cervecerias Unidas is currently generating about 0.13 per unit of risk. If you would invest  2,792  in Tenaris SA ADR on September 12, 2024 and sell it today you would earn a total of  1,116  from holding Tenaris SA ADR or generate 39.97% return on investment over 90 days.

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

Tenaris SA ADR  vs.  Compania Cervecerias Unidas

Tenaris SA ADR

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Tenaris SA ADR are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, Tenaris SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Compania Cervecerias

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Compania Cervecerias Unidas are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating fundamental indicators, Compania Cervecerias unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tenaris SA and Compania Cervecerias

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

The idea behind Tenaris SA ADR and Compania Cervecerias Unidas 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.