Correlation Between BRITISH AMERICAN and STAR AFRICA

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

Diversification Opportunities for BRITISH AMERICAN and STAR AFRICA

0.26

Correlation Coefficient

BRITISH AMERICAN  STAR AFRICA

Modest diversification

The 3 months correlation between BRITISH and STAR is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding BRITISH AMERICAN TOBACCO and STAR AFRICA PORATION in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on STAR AFRICA PORATION 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 STAR AFRICA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of STAR AFRICA PORATION has no effect on the direction of BRITISH AMERICAN i.e., BRITISH AMERICAN and STAR AFRICA go up and down completely randomly.

Pair Corralation between BRITISH AMERICAN and STAR AFRICA

Assuming the 90 days trading horizon BRITISH AMERICAN TOBACCO is expected to generate 0.49 times more return on investment than STAR AFRICA. However, BRITISH AMERICAN TOBACCO is 2.06 times less risky than STAR AFRICA. It trades about 0.27 of its potential returns per unit of risk. STAR AFRICA PORATION is currently generating about 0.09 per unit of risk. If you would invest  803,600  in BRITISH AMERICAN TOBACCO on October 27, 2024 and sell it today you would earn a total of  186,400  from holding BRITISH AMERICAN TOBACCO or generate 23.2% return on investment over 90 days.

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

BRITISH AMERICAN TOBACCO  vs.  STAR AFRICA PORATION

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.

STAR AFRICA PORATION

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in STAR AFRICA PORATION are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent fundamental indicators, STAR AFRICA showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BRITISH AMERICAN and STAR AFRICA

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

The idea behind BRITISH AMERICAN TOBACCO and STAR AFRICA PORATION 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.