Correlation Between Aeorema Communications and British American

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

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

Diversification Opportunities for Aeorema Communications and British American

-0.46

Correlation Coefficient

Aeorema Communications  British American

Very good diversification

The 3 months correlation between Aeorema and British is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Aeorema Communications Plc 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 Aeorema Communications 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 Aeorema Communications Plc 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 Aeorema Communications i.e., Aeorema Communications and British American go up and down completely randomly.

Pair Corralation between Aeorema Communications and British American

Assuming the 90 days trading horizon Aeorema Communications Plc is expected to under-perform the British American. But the stock apears to be less risky and, when comparing its historical volatility, Aeorema Communications Plc is 1.09 times less risky than British American. The stock trades about -0.11 of its potential returns per unit of risk. The British American Tobacco is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,720  in British American Tobacco on November 29, 2024 and sell it today you would earn a total of  171.00  from holding British American Tobacco or generate 4.6% return on investment over 90 days.

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

Aeorema Communications Plc  vs.  British American Tobacco

Aeorema Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Aeorema Communications Plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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 Aeorema Communications and British American

The main advantage of trading using opposite Aeorema Communications and British American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aeorema Communications 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 Aeorema Communications Plc 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.