Correlation Between McCormick Company and Ambev SA

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

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

Diversification Opportunities for McCormick Company and Ambev SA

-0.76

Correlation Coefficient

McCormick Company  Ambev SA

Pay attention - limited upside

The 3 months correlation between McCormick and Ambev is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding McCormick Company Incorporated and Ambev SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ambev SA ADR and McCormick Company 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 McCormick Company Incorporated are associated (or correlated) with Ambev SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ambev SA ADR has no effect on the direction of McCormick Company i.e., McCormick Company and Ambev SA go up and down completely randomly.

Pair Corralation between McCormick Company and Ambev SA

Considering the 90-day investment horizon McCormick Company is expected to generate 2.73 times less return on investment than Ambev SA. But when comparing it to its historical volatility, McCormick Company Incorporated is 1.42 times less risky than Ambev SA. It trades about 0.04 of its potential returns per unit of risk. Ambev SA ADR is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  241.00  in Ambev SA ADR on February 7, 2024 and sell it today you would earn a total of  5.00  from holding Ambev SA ADR or generate 2.07% return on investment over 90 days.

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

McCormick Company Incorporated  vs.  Ambev SA ADR

McCormick Company

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in McCormick Company Incorporated are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile forward-looking signals, McCormick Company exhibited solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with McCormick Company and Ambev SA

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

The idea behind McCormick Company Incorporated and Ambev SA ADR 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.