Correlation Between British Amer and NewWave USD

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

Diversification Opportunities for British Amer and NewWave USD

0.87

Correlation Coefficient

British Amer  NewWave USD

Very poor diversification

The 3 months correlation between British and NewWave is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and NewWave USD Currency in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NewWave USD Currency 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 NewWave USD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NewWave USD Currency has no effect on the direction of British Amer i.e., British Amer and NewWave USD go up and down completely randomly.

Pair Corralation between British Amer and NewWave USD

Assuming the 90 days trading horizon British American Tobacco is expected to generate 1.09 times more return on investment than NewWave USD. However, British Amer is 1.09 times more volatile than NewWave USD Currency. It trades about 0.36 of its potential returns per unit of risk. NewWave USD Currency is currently generating about 0.23 per unit of risk. If you would invest  6,195,979  in British American Tobacco on October 10, 2024 and sell it today you would earn a total of  695,221  from holding British American Tobacco or generate 11.22% return on investment over 90 days.

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

British American Tobacco  vs.  NewWave USD Currency

British American Tobacco

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 15 (%) 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.

NewWave USD Currency

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NewWave USD Currency are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, NewWave USD may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with British Amer and NewWave USD

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

The idea behind British American Tobacco and NewWave USD Currency 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.