Correlation Between British Amer and Naspers

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

Diversification Opportunities for British Amer and Naspers

0.4

Correlation Coefficient

British Amer  Naspers

Very weak diversification

The 3 months correlation between British and Naspers is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Naspers Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Naspers 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 Naspers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Naspers Limited has no effect on the direction of British Amer i.e., British Amer and Naspers go up and down completely randomly.

Pair Corralation between British Amer and Naspers

Assuming the 90 days trading horizon British Amer is expected to generate 1.34 times less return on investment than Naspers. But when comparing it to its historical volatility, British American Tobacco is 1.57 times less risky than Naspers. It trades about 0.11 of its potential returns per unit of risk. Naspers Limited is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  41,508,500  in Naspers Limited on December 28, 2024 and sell it today you would earn a total of  5,759,400  from holding Naspers Limited or generate 13.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

British American Tobacco  vs.  Naspers Limited

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 8 (%) 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.

Naspers Limited

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Naspers Limited are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Naspers exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with British Amer and Naspers

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

The idea behind British American Tobacco and Naspers 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.