Correlation Between Gaming and British American

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

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

Diversification Opportunities for Gaming and British American

0.41

Correlation Coefficient

Gaming  British American

Very weak diversification

The 3 months correlation between Gaming and British is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Gaming and Leisure 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 Gaming 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 Gaming and Leisure 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 Gaming i.e., Gaming and British American go up and down completely randomly.

Pair Corralation between Gaming and British American

Assuming the 90 days horizon Gaming is expected to generate 2.06 times less return on investment than British American. But when comparing it to its historical volatility, Gaming and Leisure is 1.11 times less risky than British American. It trades about 0.05 of its potential returns per unit of risk. British American Tobacco is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,468  in British American Tobacco on December 22, 2024 and sell it today you would earn a total of  318.00  from holding British American Tobacco or generate 9.17% return on investment over 90 days.

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

Gaming and Leisure  vs.  British American Tobacco

Gaming and Leisure

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Gaming and Leisure are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Gaming is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

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 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, British American may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Gaming and British American

The main advantage of trading using opposite Gaming and British American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gaming 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 Gaming and Leisure 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.

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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.