Correlation Between British Amer and NewFunds TRACI

Can any of the company-specific risk be diversified away by investing in both British Amer and NewFunds TRACI 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 NewFunds TRACI 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 NewFunds TRACI 3, you can compare the effects of market volatilities on British Amer and NewFunds TRACI 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 NewFunds TRACI. Check out your portfolio center. Please also check ongoing floating volatility patterns of British Amer and NewFunds TRACI.

Diversification Opportunities for British Amer and NewFunds TRACI

0.65

Correlation Coefficient

British Amer  NewFunds TRACI

Poor diversification

The 3 months correlation between British and NewFunds is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and NewFunds TRACI 3 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NewFunds TRACI 3 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 NewFunds TRACI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NewFunds TRACI 3 has no effect on the direction of British Amer i.e., British Amer and NewFunds TRACI go up and down completely randomly.

Pair Corralation between British Amer and NewFunds TRACI

Assuming the 90 days trading horizon British American Tobacco is expected to generate 4.52 times more return on investment than NewFunds TRACI. However, British Amer is 4.52 times more volatile than NewFunds TRACI 3. It trades about 0.1 of its potential returns per unit of risk. NewFunds TRACI 3 is currently generating about 0.08 per unit of risk. If you would invest  6,808,000  in British American Tobacco on December 25, 2024 and sell it today you would earn a total of  613,700  from holding British American Tobacco or generate 9.01% 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.  NewFunds TRACI 3

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 7 (%) 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.

NewFunds TRACI 3

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NewFunds TRACI 3 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, NewFunds TRACI is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with British Amer and NewFunds TRACI

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

The idea behind British American Tobacco and NewFunds TRACI 3 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.