Correlation Between British Amer and Bowler Metcalf

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Can any of the company-specific risk be diversified away by investing in both British Amer and Bowler Metcalf 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 Amer and Bowler Metcalf 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 Bowler Metcalf, you can compare the effects of market volatilities on British Amer and Bowler Metcalf 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 Amer with a short position of Bowler Metcalf. Check out your portfolio center. Please also check ongoing floating volatility patterns of British Amer and Bowler Metcalf.

Diversification Opportunities for British Amer and Bowler Metcalf

0.19
  Correlation Coefficient

Average diversification

The 3 months correlation between British and Bowler is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Bowler Metcalf in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bowler Metcalf and British Amer 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 Bowler Metcalf. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bowler Metcalf has no effect on the direction of British Amer i.e., British Amer and Bowler Metcalf go up and down completely randomly.

Pair Corralation between British Amer and Bowler Metcalf

Assuming the 90 days trading horizon British Amer is expected to generate 3.43 times less return on investment than Bowler Metcalf. But when comparing it to its historical volatility, British American Tobacco is 3.64 times less risky than Bowler Metcalf. It trades about 0.04 of its potential returns per unit of risk. Bowler Metcalf is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  88,708  in Bowler Metcalf on October 13, 2024 and sell it today you would earn a total of  47,492  from holding Bowler Metcalf or generate 53.54% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy99.8%
ValuesDaily Returns

British American Tobacco  vs.  Bowler Metcalf

 Performance 
       Timeline  
British American Tobacco 

Risk-Adjusted Performance

17 of 100

 
Weak
 
Strong
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 rather unsteady technical and fundamental indicators, British Amer exhibited solid returns over the last few months and may actually be approaching a breakup point.
Bowler Metcalf 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Bowler Metcalf has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Bowler Metcalf is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

British Amer and Bowler Metcalf Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with British Amer and Bowler Metcalf

The main advantage of trading using opposite British Amer and Bowler Metcalf positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British Amer position performs unexpectedly, Bowler Metcalf 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 Bowler Metcalf will offset losses from the drop in Bowler Metcalf's long position.
The idea behind British American Tobacco and Bowler Metcalf 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.

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