Correlation Between British American and Enphase Energy

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

Diversification Opportunities for British American and Enphase Energy

-0.61

Correlation Coefficient

British American  Enphase Energy

Excellent diversification

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

Pair Corralation between British American and Enphase Energy

Assuming the 90 days trading horizon British American Tobacco is expected to generate 0.27 times more return on investment than Enphase Energy. However, British American Tobacco is 3.66 times less risky than Enphase Energy. It trades about 0.16 of its potential returns per unit of risk. Enphase Energy is currently generating about -0.06 per unit of risk. If you would invest  2,892  in British American Tobacco on October 10, 2024 and sell it today you would earn a total of  675.00  from holding British American Tobacco or generate 23.34% 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.  Enphase Energy

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.

Enphase Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Enphase Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with British American and Enphase Energy

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

The idea behind British American Tobacco and Enphase Energy 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 Transaction History module to view history of all your transactions and understand their impact on performance.