Correlation Between British American and Easterly Government

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

Diversification Opportunities for British American and Easterly Government

-0.74

Correlation Coefficient

British American  Easterly Government

Pay attention - limited upside

The 3 months correlation between British and Easterly is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Easterly Government Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Easterly Government 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 Easterly Government. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Easterly Government has no effect on the direction of British American i.e., British American and Easterly Government go up and down completely randomly.

Pair Corralation between British American and Easterly Government

Assuming the 90 days trading horizon British American Tobacco is expected to generate 0.73 times more return on investment than Easterly Government. However, British American Tobacco is 1.37 times less risky than Easterly Government. It trades about 0.07 of its potential returns per unit of risk. Easterly Government Properties is currently generating about 0.0 per unit of risk. If you would invest  2,629  in British American Tobacco on October 3, 2024 and sell it today you would earn a total of  873.00  from holding British American Tobacco or generate 33.21% 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.  Easterly Government Properties

British American Tobacco

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, British American may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Easterly Government

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with British American and Easterly Government

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

The idea behind British American Tobacco and Easterly Government Properties 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.