Correlation Between Heineken and Budweiser Brewing

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

By analyzing existing cross correlation between Heineken NV and Budweiser Brewing, you can compare the effects of market volatilities on Heineken and Budweiser 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 Heineken with a short position of Budweiser Brewing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Heineken and Budweiser Brewing.

Diversification Opportunities for Heineken and Budweiser Brewing

-0.19

Correlation Coefficient

Heineken  Budweiser Brewing

Good diversification

The 3 months correlation between Heineken and Budweiser is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Heineken NV and Budweiser Brewing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Budweiser Brewing and Heineken 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 Heineken NV are associated (or correlated) with Budweiser Brewing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Budweiser Brewing has no effect on the direction of Heineken i.e., Heineken and Budweiser Brewing go up and down completely randomly.

Pair Corralation between Heineken and Budweiser Brewing

Assuming the 90 days horizon Heineken NV is expected to generate 0.6 times more return on investment than Budweiser Brewing. However, Heineken NV is 1.68 times less risky than Budweiser Brewing. It trades about 0.07 of its potential returns per unit of risk. Budweiser Brewing is currently generating about -0.14 per unit of risk. If you would invest  9,425  in Heineken NV on March 14, 2024 and sell it today you would earn a total of  586.00  from holding Heineken NV or generate 6.22% return on investment over 90 days.

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

Heineken NV  vs.  Budweiser Brewing

Heineken NV

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Heineken NV are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward-looking signals, Heineken may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Budweiser Brewing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Budweiser Brewing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental drivers remain fairly strong which may send shares a bit higher in July 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Heineken and Budweiser Brewing

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

The idea behind Heineken NV and Budweiser 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.

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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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.