Correlation Between British American and Option Care

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

Diversification Opportunities for British American and Option Care

-0.35

Correlation Coefficient

British American  Option Care

Very good diversification

The 3 months correlation between British and Option is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Option Care Health in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Option Care Health 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 Option Care. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Option Care Health has no effect on the direction of British American i.e., British American and Option Care go up and down completely randomly.

Pair Corralation between British American and Option Care

Assuming the 90 days trading horizon British American is expected to generate 12.15 times less return on investment than Option Care. But when comparing it to its historical volatility, British American Tobacco is 3.65 times less risky than Option Care. It trades about 0.06 of its potential returns per unit of risk. Option Care Health is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  2,220  in Option Care Health on October 26, 2024 and sell it today you would earn a total of  560.00  from holding Option Care Health or generate 25.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	97.5%
Values	Daily Returns

British American Tobacco  vs.  Option Care Health

British American Tobacco

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 18 (%) 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.

Option Care Health

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Option Care Health are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Option Care may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with British American and Option Care

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

The idea behind British American Tobacco and Option Care Health 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.