Correlation Between BRITISH AMERICAN and ECONET WIRELESS

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

Diversification Opportunities for BRITISH AMERICAN and ECONET WIRELESS

0.16

Correlation Coefficient

BRITISH AMERICAN  ECONET WIRELESS

Average diversification

The 3 months correlation between BRITISH and ECONET is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding BRITISH AMERICAN TOBACCO and ECONET WIRELESS HOLDINGS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ECONET WIRELESS HOLDINGS 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 ECONET WIRELESS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ECONET WIRELESS HOLDINGS has no effect on the direction of BRITISH AMERICAN i.e., BRITISH AMERICAN and ECONET WIRELESS go up and down completely randomly.

Pair Corralation between BRITISH AMERICAN and ECONET WIRELESS

Assuming the 90 days trading horizon BRITISH AMERICAN TOBACCO is expected to generate 0.69 times more return on investment than ECONET WIRELESS. However, BRITISH AMERICAN TOBACCO is 1.44 times less risky than ECONET WIRELESS. It trades about 0.2 of its potential returns per unit of risk. ECONET WIRELESS HOLDINGS is currently generating about -0.05 per unit of risk. If you would invest  786,580  in BRITISH AMERICAN TOBACCO on October 12, 2024 and sell it today you would earn a total of  139,420  from holding BRITISH AMERICAN TOBACCO or generate 17.72% 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.  ECONET WIRELESS HOLDINGS

BRITISH AMERICAN TOBACCO

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BRITISH AMERICAN TOBACCO are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, BRITISH AMERICAN demonstrated solid returns over the last few months and may actually be approaching a breakup point.

ECONET WIRELESS HOLDINGS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ECONET WIRELESS HOLDINGS 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 forward indicators remain fairly strong which may send shares a bit higher in February 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Pair Trading with BRITISH AMERICAN and ECONET WIRELESS

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

The idea behind BRITISH AMERICAN TOBACCO and ECONET WIRELESS HOLDINGS 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.