Correlation Between British American and CLOVER HEALTH

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

Diversification Opportunities for British American and CLOVER HEALTH

-0.61

Correlation Coefficient

British American  CLOVER HEALTH

Excellent diversification

The 3 months correlation between British and CLOVER is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and CLOVER HEALTH INV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CLOVER HEALTH INV 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 CLOVER HEALTH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CLOVER HEALTH INV has no effect on the direction of British American i.e., British American and CLOVER HEALTH go up and down completely randomly.

Pair Corralation between British American and CLOVER HEALTH

Assuming the 90 days trading horizon British American is expected to generate 5.81 times less return on investment than CLOVER HEALTH. But when comparing it to its historical volatility, British American Tobacco is 6.41 times less risky than CLOVER HEALTH. It trades about 0.18 of its potential returns per unit of risk. CLOVER HEALTH INV is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  64.00  in CLOVER HEALTH INV on October 9, 2024 and sell it today you would earn a total of  255.00  from holding CLOVER HEALTH INV or generate 398.44% return on investment over 90 days.

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

British American Tobacco  vs.  CLOVER HEALTH INV

British American Tobacco

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, British American may actually be approaching a critical reversion point that can send shares even higher in February 2025.

CLOVER HEALTH INV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CLOVER HEALTH INV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, CLOVER HEALTH is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with British American and CLOVER HEALTH

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

The idea behind British American Tobacco and CLOVER HEALTH INV 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.