Correlation Between British American and Global X

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

Diversification Opportunities for British American and Global X

0.44
  Correlation Coefficient

Very weak diversification

The 3 months correlation between British and Global is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Global X Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Global X Funds 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 Global X. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Global X Funds has no effect on the direction of British American i.e., British American and Global X go up and down completely randomly.

Pair Corralation between British American and Global X

Assuming the 90 days trading horizon British American is expected to generate 4.27 times less return on investment than Global X. But when comparing it to its historical volatility, British American Tobacco is 1.07 times less risky than Global X. It trades about 0.07 of its potential returns per unit of risk. Global X Funds is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  4,090  in Global X Funds on September 10, 2024 and sell it today you would earn a total of  1,110  from holding Global X Funds or generate 27.14% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

British American Tobacco  vs.  Global X Funds

 Performance 
       Timeline  
British American Tobacco 

Risk-Adjusted Performance

5 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, British American is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Global X Funds 

Risk-Adjusted Performance

22 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Global X Funds are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Global X sustained solid returns over the last few months and may actually be approaching a breakup point.

British American and Global X Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with British American and Global X

The main advantage of trading using opposite British American and Global X positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American position performs unexpectedly, Global X 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 Global X will offset losses from the drop in Global X's long position.
The idea behind British American Tobacco and Global X Funds 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 Global Correlations module to find global opportunities by holding instruments from different markets.

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