Correlation Between British American and Siemens AG

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

Diversification Opportunities for British American and Siemens AG

-0.42

Correlation Coefficient

British American  Siemens AG

Very good diversification

The 3 months correlation between British and Siemens is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Siemens AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Siemens AG ADR 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 Siemens AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Siemens AG ADR has no effect on the direction of British American i.e., British American and Siemens AG go up and down completely randomly.

Pair Corralation between British American and Siemens AG

Assuming the 90 days trading horizon British American is expected to generate 16.97 times less return on investment than Siemens AG. But when comparing it to its historical volatility, British American Tobacco is 5.48 times less risky than Siemens AG. It trades about 0.03 of its potential returns per unit of risk. Siemens AG ADR is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  4.22  in Siemens AG ADR on October 10, 2024 and sell it today you would earn a total of  36.78  from holding Siemens AG ADR or generate 871.56% return on investment over 90 days.

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

British American Tobacco  vs.  Siemens AG ADR

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.

Siemens AG ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Siemens AG ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with British American and Siemens AG

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

The idea behind British American Tobacco and Siemens AG ADR 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.