Correlation Between British American and Fidelity National

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

Diversification Opportunities for British American and Fidelity National

-0.08

Correlation Coefficient

British American  Fidelity National

Good diversification

The 3 months correlation between British and Fidelity is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Fidelity National Information in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity National 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 Fidelity National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity National has no effect on the direction of British American i.e., British American and Fidelity National go up and down completely randomly.

Pair Corralation between British American and Fidelity National

Assuming the 90 days trading horizon British American Tobacco is expected to generate 1.09 times more return on investment than Fidelity National. However, British American is 1.09 times more volatile than Fidelity National Information. It trades about 0.03 of its potential returns per unit of risk. Fidelity National Information is currently generating about -0.12 per unit of risk. If you would invest  4,510  in British American Tobacco on December 26, 2024 and sell it today you would earn a total of  113.00  from holding British American Tobacco or generate 2.51% return on investment over 90 days.

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

British American Tobacco  vs.  Fidelity National Information

British American Tobacco

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 2 (%) 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.

Fidelity National

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fidelity National Information has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with British American and Fidelity National

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

The idea behind British American Tobacco and Fidelity National Information 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.