Correlation Between British American and Intuitive Surgical

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

Diversification Opportunities for British American and Intuitive Surgical

-0.28

Correlation Coefficient

British American  Intuitive Surgical

Very good diversification

The 3 months correlation between British and Intuitive is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Intuitive Surgical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intuitive Surgical 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 Intuitive Surgical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intuitive Surgical has no effect on the direction of British American i.e., British American and Intuitive Surgical go up and down completely randomly.

Pair Corralation between British American and Intuitive Surgical

Assuming the 90 days trading horizon British American Tobacco is expected to generate 0.78 times more return on investment than Intuitive Surgical. However, British American Tobacco is 1.29 times less risky than Intuitive Surgical. It trades about -0.06 of its potential returns per unit of risk. Intuitive Surgical is currently generating about -0.35 per unit of risk. If you would invest  4,878  in British American Tobacco on December 11, 2024 and sell it today you would lose (133.00) from holding British American Tobacco or give up 2.73% of portfolio value over 90 days.

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

British American Tobacco  vs.  Intuitive Surgical

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. Despite somewhat weak basic indicators, British American may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Intuitive Surgical

Risk-Adjusted Performance

Very Weak

Over the last 90 days Intuitive Surgical 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 Intuitive Surgical

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

The idea behind British American Tobacco and Intuitive Surgical 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.