Correlation Between Fevertree Drinks and Compania Cervecerias

Can any of the company-specific risk be diversified away by investing in both Fevertree Drinks 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 Fevertree Drinks and Compania Cervecerias 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 Compania Cervecerias Unidas, you can compare the effects of market volatilities on Fevertree Drinks 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 Fevertree Drinks with a short position of Compania Cervecerias. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fevertree Drinks and Compania Cervecerias.

Diversification Opportunities for Fevertree Drinks and Compania Cervecerias

0.33

Correlation Coefficient

Fevertree Drinks  Compania Cervecerias

Weak diversification

The 3 months correlation between Fevertree and Compania is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Fevertree Drinks Plc and Compania Cervecerias Unidas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compania Cervecerias 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 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 Fevertree Drinks i.e., Fevertree Drinks and Compania Cervecerias go up and down completely randomly.

Pair Corralation between Fevertree Drinks and Compania Cervecerias

Assuming the 90 days horizon Fevertree Drinks Plc is expected to under-perform the Compania Cervecerias. In addition to that, Fevertree Drinks is 1.55 times more volatile than Compania Cervecerias Unidas. It trades about -0.01 of its total potential returns per unit of risk. Compania Cervecerias Unidas is currently generating about -0.01 per unit of volatility. If you would invest  1,476  in Compania Cervecerias Unidas on February 22, 2024 and sell it today you would lose (105.00) from holding Compania Cervecerias Unidas or give up 7.11% of portfolio value over 90 days.

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

Fevertree Drinks Plc  vs.  Compania Cervecerias Unidas

Fevertree Drinks Plc

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fevertree Drinks Plc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Fevertree Drinks reported solid returns over the last few months and may actually be approaching a breakup point.

Compania Cervecerias

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compania Cervecerias Unidas are ranked lower than 12 (%) 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 Fevertree Drinks and Compania Cervecerias

The main advantage of trading using opposite Fevertree Drinks and Compania Cervecerias positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fevertree Drinks 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 Fevertree Drinks Plc 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.

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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.