Correlation Between British American and ValOre Metals

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

Diversification Opportunities for British American and ValOre Metals

-0.25

Correlation Coefficient

British American  ValOre Metals

Very good diversification

The 3 months correlation between British and ValOre is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and ValOre Metals Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ValOre Metals Corp 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 ValOre Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ValOre Metals Corp has no effect on the direction of British American i.e., British American and ValOre Metals go up and down completely randomly.

Pair Corralation between British American and ValOre Metals

Assuming the 90 days trading horizon British American is expected to generate 28.81 times less return on investment than ValOre Metals. But when comparing it to its historical volatility, British American Tobacco is 17.94 times less risky than ValOre Metals. It trades about 0.04 of its potential returns per unit of risk. ValOre Metals Corp is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  18.00  in ValOre Metals Corp on October 25, 2024 and sell it today you would lose (13.90) from holding ValOre Metals Corp or give up 77.22% of portfolio value over 90 days.

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

British American Tobacco  vs.  ValOre Metals Corp

British American Tobacco

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 17 (%) 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.

ValOre Metals Corp

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with British American and ValOre Metals

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

The idea behind British American Tobacco and ValOre Metals Corp 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.