Correlation Between British American and Beeks Trading

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Can any of the company-specific risk be diversified away by investing in both British American and Beeks Trading 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 Beeks Trading 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 Beeks Trading, you can compare the effects of market volatilities on British American and Beeks Trading 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 Beeks Trading. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and Beeks Trading.

Diversification Opportunities for British American and Beeks Trading

0.67
  Correlation Coefficient

Poor diversification

The 3 months correlation between British and Beeks is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Beeks Trading in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beeks Trading 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 Beeks Trading. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beeks Trading has no effect on the direction of British American i.e., British American and Beeks Trading go up and down completely randomly.

Pair Corralation between British American and Beeks Trading

Assuming the 90 days trading horizon British American Tobacco is expected to generate 0.42 times more return on investment than Beeks Trading. However, British American Tobacco is 2.39 times less risky than Beeks Trading. It trades about 0.12 of its potential returns per unit of risk. Beeks Trading is currently generating about -0.08 per unit of risk. If you would invest  3,630  in British American Tobacco on October 26, 2024 and sell it today you would earn a total of  78.00  from holding British American Tobacco or generate 2.15% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

British American Tobacco  vs.  Beeks Trading

 Performance 
       Timeline  
British American Tobacco 

Risk-Adjusted Performance

11 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, British American may actually be approaching a critical reversion point that can send shares even higher in February 2025.
Beeks Trading 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Beeks Trading are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Beeks Trading exhibited solid returns over the last few months and may actually be approaching a breakup point.

British American and Beeks Trading Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with British American and Beeks Trading

The main advantage of trading using opposite British American and Beeks Trading positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American position performs unexpectedly, Beeks Trading 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 Beeks Trading will offset losses from the drop in Beeks Trading's long position.
The idea behind British American Tobacco and Beeks Trading 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.

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