Correlation Between Sparebank and British American

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

By analyzing existing cross correlation between Sparebank 1 SR and British American Tobacco, you can compare the effects of market volatilities on Sparebank and British American 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 Sparebank with a short position of British American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sparebank and British American.

Diversification Opportunities for Sparebank and British American

0.74

Correlation Coefficient

Sparebank  British American

Poor diversification

The 3 months correlation between Sparebank and British is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Sparebank 1 SR and British American Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on British American Tobacco and Sparebank 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 Sparebank 1 SR are associated (or correlated) with British American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of British American Tobacco has no effect on the direction of Sparebank i.e., Sparebank and British American go up and down completely randomly.

Pair Corralation between Sparebank and British American

Assuming the 90 days trading horizon Sparebank 1 SR is expected to generate 0.55 times more return on investment than British American. However, Sparebank 1 SR is 1.82 times less risky than British American. It trades about 0.2 of its potential returns per unit of risk. British American Tobacco is currently generating about 0.05 per unit of risk. If you would invest  14,480  in Sparebank 1 SR on November 29, 2024 and sell it today you would earn a total of  1,640  from holding Sparebank 1 SR or generate 11.33% return on investment over 90 days.

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

Sparebank 1 SR  vs.  British American Tobacco

Sparebank 1 SR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Sparebank 1 SR are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Sparebank may actually be approaching a critical reversion point that can send shares even higher in March 2025.

British American Tobacco

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, British American is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Sparebank and British American

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

The idea behind Sparebank 1 SR and British American Tobacco 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.