Correlation Between British Amer and RMB Holdings

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

Diversification Opportunities for British Amer and RMB Holdings

0.75

Correlation Coefficient

British Amer  RMB Holdings

Poor diversification

The 3 months correlation between British and RMB is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and RMB Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RMB 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 RMB Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RMB Holdings has no effect on the direction of British Amer i.e., British Amer and RMB Holdings go up and down completely randomly.

Pair Corralation between British Amer and RMB Holdings

Assuming the 90 days trading horizon British American Tobacco is expected to generate 0.35 times more return on investment than RMB Holdings. However, British American Tobacco is 2.83 times less risky than RMB Holdings. It trades about 0.11 of its potential returns per unit of risk. RMB Holdings is currently generating about -0.01 per unit of risk. If you would invest  4,881,158  in British American Tobacco on October 5, 2024 and sell it today you would earn a total of  1,941,342  from holding British American Tobacco or generate 39.77% return on investment over 90 days.

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

British American Tobacco  vs.  RMB Holdings

British American Tobacco

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 16 (%) 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.

RMB Holdings

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in RMB Holdings 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, RMB Holdings may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with British Amer and RMB Holdings

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

The idea behind British American Tobacco and RMB 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.