Correlation Between British American and PagSeguro Digital

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

Diversification Opportunities for British American and PagSeguro Digital

0.13

Correlation Coefficient

British American  PagSeguro Digital

Average diversification

The 3 months correlation between British and PagSeguro is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and PagSeguro Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PagSeguro Digital 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 PagSeguro Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PagSeguro Digital has no effect on the direction of British American i.e., British American and PagSeguro Digital go up and down completely randomly.

Pair Corralation between British American and PagSeguro Digital

Assuming the 90 days trading horizon British American is expected to generate 3.8 times less return on investment than PagSeguro Digital. But when comparing it to its historical volatility, British American Tobacco is 1.16 times less risky than PagSeguro Digital. It trades about 0.03 of its potential returns per unit of risk. PagSeguro Digital is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  808.00  in PagSeguro Digital on December 26, 2024 and sell it today you would earn a total of  127.00  from holding PagSeguro Digital or generate 15.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

British American Tobacco  vs.  PagSeguro Digital

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.

PagSeguro Digital

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in PagSeguro Digital are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, PagSeguro Digital sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with British American and PagSeguro Digital

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

The idea behind British American Tobacco and PagSeguro Digital 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.