Correlation Between British Amer and JSE

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

Diversification Opportunities for British Amer and JSE

0.55

Correlation Coefficient

British Amer  JSE

Very weak diversification

The 3 months correlation between British and JSE is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and JSE Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JSE Limited 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 JSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JSE Limited has no effect on the direction of British Amer i.e., British Amer and JSE go up and down completely randomly.

Pair Corralation between British Amer and JSE

Assuming the 90 days trading horizon British American Tobacco is expected to generate 1.22 times more return on investment than JSE. However, British Amer is 1.22 times more volatile than JSE Limited. It trades about 0.07 of its potential returns per unit of risk. JSE Limited is currently generating about 0.08 per unit of risk. If you would invest  6,808,000  in British American Tobacco on December 27, 2024 and sell it today you would earn a total of  432,200  from holding British American Tobacco or generate 6.35% return on investment over 90 days.

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

British American Tobacco  vs.  JSE Limited

British American Tobacco

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 5 (%) 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.

JSE Limited

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in JSE Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, JSE may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with British Amer and JSE

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

The idea behind British American Tobacco and JSE Limited 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.