Correlation Between British American and Sociedad Química

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

Diversification Opportunities for British American and Sociedad Química

0.18

Correlation Coefficient

British American  Sociedad Química

Average diversification

The 3 months correlation between British and Sociedad is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Sociedad Qumica y in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sociedad Qumica y 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 Sociedad Química. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sociedad Qumica y has no effect on the direction of British American i.e., British American and Sociedad Química go up and down completely randomly.

Pair Corralation between British American and Sociedad Química

Assuming the 90 days trading horizon British American is expected to generate 1.54 times less return on investment than Sociedad Química. But when comparing it to its historical volatility, British American Tobacco is 1.41 times less risky than Sociedad Química. It trades about 0.1 of its potential returns per unit of risk. Sociedad Qumica y is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,560  in Sociedad Qumica y on December 23, 2024 and sell it today you would earn a total of  500.00  from holding Sociedad Qumica y or generate 14.04% return on investment over 90 days.

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

British American Tobacco  vs.  Sociedad Qumica y

British American Tobacco

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 7 (%) 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 April 2025.

Sociedad Qumica y

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sociedad Qumica y are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Sociedad Química reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with British American and Sociedad Química

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

The idea behind British American Tobacco and Sociedad Qumica y 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.