Correlation Between British Amer and City Lodge

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

Diversification Opportunities for British Amer and City Lodge

-0.66

Correlation Coefficient

British Amer  City Lodge

Excellent diversification

The 3 months correlation between British and City is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and City Lodge Hotels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City Lodge Hotels 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 City Lodge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City Lodge Hotels has no effect on the direction of British Amer i.e., British Amer and City Lodge go up and down completely randomly.

Pair Corralation between British Amer and City Lodge

Assuming the 90 days trading horizon British American Tobacco is expected to generate 1.05 times more return on investment than City Lodge. However, British Amer is 1.05 times more volatile than City Lodge Hotels. It trades about 0.12 of its potential returns per unit of risk. City Lodge Hotels is currently generating about -0.23 per unit of risk. If you would invest  6,632,849  in British American Tobacco on December 30, 2024 and sell it today you would earn a total of  814,751  from holding British American Tobacco or generate 12.28% return on investment over 90 days.

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

British American Tobacco  vs.  City Lodge Hotels

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 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, British Amer may actually be approaching a critical reversion point that can send shares even higher in April 2025.

City Lodge Hotels

Risk-Adjusted Performance

Very Weak

Over the last 90 days City Lodge Hotels has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with British Amer and City Lodge

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

The idea behind British American Tobacco and City Lodge Hotels 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.

Check out your portfolio center.

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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.