Correlation Between British American and Vodafone Group

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

Diversification Opportunities for British American and Vodafone Group

0.53

Correlation Coefficient

British American  Vodafone Group

Very weak diversification

The 3 months correlation between British and Vodafone is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Vodafone Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vodafone Group 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 Vodafone Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vodafone Group PLC has no effect on the direction of British American i.e., British American and Vodafone Group go up and down completely randomly.

Pair Corralation between British American and Vodafone Group

Assuming the 90 days trading horizon British American Tobacco is expected to generate 0.87 times more return on investment than Vodafone Group. However, British American Tobacco is 1.15 times less risky than Vodafone Group. It trades about 0.12 of its potential returns per unit of risk. Vodafone Group PLC is currently generating about 0.07 per unit of risk. If you would invest  3,630  in British American Tobacco on December 25, 2024 and sell it today you would earn a total of  443.00  from holding British American Tobacco or generate 12.2% 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.  Vodafone Group PLC

British American Tobacco

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, British American unveiled solid returns over the last few months and may actually be approaching a breakup point.

Vodafone Group PLC

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vodafone Group PLC 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, Vodafone Group may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with British American and Vodafone Group

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

The idea behind British American Tobacco and Vodafone Group 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.

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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.