Correlation Between Anheuser Busch and Mendocino Brewing

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Can any of the company-specific risk be diversified away by investing in both Anheuser Busch and Mendocino Brewing 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 Anheuser Busch and Mendocino Brewing into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Anheuser Busch Inbev and Mendocino Brewing, you can compare the effects of market volatilities on Anheuser Busch and Mendocino Brewing 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 Anheuser Busch with a short position of Mendocino Brewing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Anheuser Busch and Mendocino Brewing.

Diversification Opportunities for Anheuser Busch and Mendocino Brewing

-0.46
  Correlation Coefficient

Very good diversification

The 3 months correlation between Anheuser and Mendocino is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Anheuser Busch Inbev and Mendocino Brewing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mendocino Brewing and Anheuser Busch 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 Anheuser Busch Inbev are associated (or correlated) with Mendocino Brewing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mendocino Brewing has no effect on the direction of Anheuser Busch i.e., Anheuser Busch and Mendocino Brewing go up and down completely randomly.

Pair Corralation between Anheuser Busch and Mendocino Brewing

If you would invest  0.02  in Mendocino Brewing on December 29, 2023 and sell it today you would earn a total of  0.00  from holding Mendocino Brewing or generate 0.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy4.55%
ValuesDaily Returns

Anheuser Busch Inbev  vs.  Mendocino Brewing

 Performance 
       Timeline  
Anheuser Busch Inbev 

Risk-Adjusted Performance

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Very Weak
Over the last 90 days Anheuser Busch Inbev has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Anheuser Busch is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.
Mendocino Brewing 

Risk-Adjusted Performance

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Low
 
High
Very Weak
Over the last 90 days Mendocino Brewing has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Mendocino Brewing is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Anheuser Busch and Mendocino Brewing Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Anheuser Busch and Mendocino Brewing

The main advantage of trading using opposite Anheuser Busch and Mendocino Brewing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Anheuser Busch position performs unexpectedly, Mendocino Brewing 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 Mendocino Brewing will offset losses from the drop in Mendocino Brewing's long position.
The idea behind Anheuser Busch Inbev and Mendocino Brewing 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.
Check out your portfolio center.
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.

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