Correlation Between British Amer and Kap Industrial

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

Diversification Opportunities for British Amer and Kap Industrial

-0.54

Correlation Coefficient

British Amer  Kap Industrial

Excellent diversification

The 3 months correlation between British and Kap is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Kap Industrial Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kap Industrial Holdings 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 Kap Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kap Industrial Holdings has no effect on the direction of British Amer i.e., British Amer and Kap Industrial go up and down completely randomly.

Pair Corralation between British Amer and Kap Industrial

Assuming the 90 days trading horizon British American Tobacco is expected to generate 0.7 times more return on investment than Kap Industrial. However, British American Tobacco is 1.43 times less risky than Kap Industrial. It trades about 0.0 of its potential returns per unit of risk. Kap Industrial Holdings is currently generating about -0.05 per unit of risk. If you would invest  6,761,278  in British American Tobacco on September 12, 2024 and sell it today you would lose (36,178) from holding British American Tobacco or give up 0.54% of portfolio value over 90 days.

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

British American Tobacco  vs.  Kap Industrial Holdings

British American Tobacco

Risk-Adjusted Performance

0 of 100

Very Weak

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

Kap Industrial Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with British Amer and Kap Industrial

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

The idea behind British American Tobacco and Kap Industrial Holdings 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.