Correlation Between BRITISH AMERICAN and CAFCA

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

Diversification Opportunities for BRITISH AMERICAN and CAFCA

0.04

Correlation Coefficient

BRITISH AMERICAN  CAFCA

Significant diversification

The 3 months correlation between BRITISH and CAFCA is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding BRITISH AMERICAN TOBACCO and CAFCA LIMITED in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAFCA LIMITED 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 CAFCA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAFCA LIMITED has no effect on the direction of BRITISH AMERICAN i.e., BRITISH AMERICAN and CAFCA go up and down completely randomly.

Pair Corralation between BRITISH AMERICAN and CAFCA

Assuming the 90 days trading horizon BRITISH AMERICAN is expected to generate 1.07 times less return on investment than CAFCA. In addition to that, BRITISH AMERICAN is 2.43 times more volatile than CAFCA LIMITED. It trades about 0.07 of its total potential returns per unit of risk. CAFCA LIMITED is currently generating about 0.17 per unit of volatility. If you would invest  156,000  in CAFCA LIMITED on October 27, 2024 and sell it today you would earn a total of  47,965  from holding CAFCA LIMITED or generate 30.75% 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.  CAFCA LIMITED

BRITISH AMERICAN TOBACCO

Risk-Adjusted Performance

5 of 100

Insignificant

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 fairly inconsistent forward indicators, BRITISH AMERICAN demonstrated solid returns over the last few months and may actually be approaching a breakup point.

CAFCA LIMITED

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CAFCA LIMITED are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent fundamental indicators, CAFCA showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BRITISH AMERICAN and CAFCA

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

The idea behind BRITISH AMERICAN TOBACCO and CAFCA LIMITED 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.