Correlation Between British American and ECS ICT

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

Diversification Opportunities for British American and ECS ICT

0.91

Correlation Coefficient

British American  ECS ICT

Almost no diversification

The 3 months correlation between British and ECS is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and ECS ICT Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECS ICT Bhd 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 ECS ICT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECS ICT Bhd has no effect on the direction of British American i.e., British American and ECS ICT go up and down completely randomly.

Pair Corralation between British American and ECS ICT

Assuming the 90 days trading horizon British American Tobacco is expected to generate 0.34 times more return on investment than ECS ICT. However, British American Tobacco is 2.96 times less risky than ECS ICT. It trades about -0.32 of its potential returns per unit of risk. ECS ICT Bhd is currently generating about -0.18 per unit of risk. If you would invest  730.00  in British American Tobacco on December 23, 2024 and sell it today you would lose (121.00) from holding British American Tobacco or give up 16.58% of portfolio value over 90 days.

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

British American Tobacco  vs.  ECS ICT Bhd

British American Tobacco

Risk-Adjusted Performance

Very Weak

Over the last 90 days British American Tobacco has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

ECS ICT Bhd

Risk-Adjusted Performance

Very Weak

Over the last 90 days ECS ICT Bhd has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in April 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with British American and ECS ICT

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

The idea behind British American Tobacco and ECS ICT Bhd 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.