Correlation Between British American and Ryanair Holdings

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

By analyzing existing cross correlation between British American Tobacco and Ryanair Holdings plc, you can compare the effects of market volatilities on British American and Ryanair Holdings 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 British American with a short position of Ryanair Holdings. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and Ryanair Holdings.

Diversification Opportunities for British American and Ryanair Holdings

0.51

Correlation Coefficient

British American  Ryanair Holdings

Very weak diversification

The 3 months correlation between British and Ryanair is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Ryanair Holdings plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ryanair Holdings plc and British American 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 British American Tobacco are associated (or correlated) with Ryanair Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ryanair Holdings plc has no effect on the direction of British American i.e., British American and Ryanair Holdings go up and down completely randomly.

Pair Corralation between British American and Ryanair Holdings

Assuming the 90 days trading horizon British American Tobacco is expected to under-perform the Ryanair Holdings. But the stock apears to be less risky and, when comparing its historical volatility, British American Tobacco is 1.65 times less risky than Ryanair Holdings. The stock trades about -0.01 of its potential returns per unit of risk. The Ryanair Holdings plc is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  141,800  in Ryanair Holdings plc on September 27, 2024 and sell it today you would earn a total of  18,200  from holding Ryanair Holdings plc or generate 12.83% return on investment over 90 days.

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

British American Tobacco  vs.  Ryanair Holdings plc

British American Tobacco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days British American Tobacco has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, British American is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Ryanair Holdings plc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ryanair Holdings plc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite quite unsteady essential indicators, Ryanair Holdings disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with British American and Ryanair Holdings

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

The idea behind British American Tobacco and Ryanair Holdings plc 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.