Correlation Between British American and Sunway Construction

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

Diversification Opportunities for British American and Sunway Construction

-0.17

Correlation Coefficient

British American  Sunway Construction

Good diversification

The 3 months correlation between British and Sunway is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Sunway Construction Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sunway Construction 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 Sunway Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sunway Construction has no effect on the direction of British American i.e., British American and Sunway Construction go up and down completely randomly.

Pair Corralation between British American and Sunway Construction

Assuming the 90 days trading horizon British American Tobacco is expected to under-perform the Sunway Construction. But the stock apears to be less risky and, when comparing its historical volatility, British American Tobacco is 2.01 times less risky than Sunway Construction. The stock trades about -0.04 of its potential returns per unit of risk. The Sunway Construction Group is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  253.00  in Sunway Construction Group on October 22, 2024 and sell it today you would earn a total of  97.00  from holding Sunway Construction Group or generate 38.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.56%
Values	Daily Returns

British American Tobacco  vs.  Sunway Construction Group

British American Tobacco

Risk-Adjusted Performance

0 of 100

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 quite persistent basic indicators, British American is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Sunway Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sunway Construction Group 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 February 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 Sunway Construction

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

The idea behind British American Tobacco and Sunway Construction Group 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.