Correlation Between British American and Metalrgica Riosulense

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

Diversification Opportunities for British American and Metalrgica Riosulense

0.09

Correlation Coefficient

British American  Metalrgica Riosulense

Significant diversification

The 3 months correlation between British and Metalrgica is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Metalrgica Riosulense SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metalrgica Riosulense 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 Metalrgica Riosulense. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metalrgica Riosulense has no effect on the direction of British American i.e., British American and Metalrgica Riosulense go up and down completely randomly.

Pair Corralation between British American and Metalrgica Riosulense

Assuming the 90 days trading horizon British American Tobacco is expected to generate 0.98 times more return on investment than Metalrgica Riosulense. However, British American Tobacco is 1.02 times less risky than Metalrgica Riosulense. It trades about 0.13 of its potential returns per unit of risk. Metalrgica Riosulense SA is currently generating about -0.02 per unit of risk. If you would invest  2,840  in British American Tobacco on December 5, 2024 and sell it today you would earn a total of  1,723  from holding British American Tobacco or generate 60.67% return on investment over 90 days.

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

British American Tobacco  vs.  Metalrgica Riosulense SA

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.

Metalrgica Riosulense

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Metalrgica Riosulense SA are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Metalrgica Riosulense unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with British American and Metalrgica Riosulense

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

The idea behind British American Tobacco and Metalrgica Riosulense SA 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.