Correlation Between Ambev SA and Falcon Metals

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

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

Diversification Opportunities for Ambev SA and Falcon Metals

0.65

Correlation Coefficient

Ambev SA  Falcon Metals

Poor diversification

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

Pair Corralation between Ambev SA and Falcon Metals

Given the investment horizon of 90 days Ambev SA ADR is expected to generate 0.19 times more return on investment than Falcon Metals. However, Ambev SA ADR is 5.28 times less risky than Falcon Metals. It trades about 0.0 of its potential returns per unit of risk. Falcon Metals Limited is currently generating about -0.01 per unit of risk. If you would invest  249.00  in Ambev SA ADR on February 17, 2024 and sell it today you would lose (10.00) from holding Ambev SA ADR or give up 4.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.66%
Values	Daily Returns

Ambev SA ADR  vs.  Falcon Metals Limited

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 fairly stable technical and fundamental indicators, Ambev SA is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Falcon Metals Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Falcon Metals Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Falcon Metals is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Ambev SA and Falcon Metals

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

The idea behind Ambev SA ADR and Falcon Metals Limited 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.