Correlation Between British Amer and KVH Industries

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

Diversification Opportunities for British Amer and KVH Industries

0.11

Correlation Coefficient

British Amer  KVH Industries

Average diversification

The 3 months correlation between British and KVH is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and KVH Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KVH Industries 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 KVH Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KVH Industries has no effect on the direction of British Amer i.e., British Amer and KVH Industries go up and down completely randomly.

Pair Corralation between British Amer and KVH Industries

Considering the 90-day investment horizon British American Tobacco is expected to generate 0.76 times more return on investment than KVH Industries. However, British American Tobacco is 1.32 times less risky than KVH Industries. It trades about 0.16 of its potential returns per unit of risk. KVH Industries is currently generating about -0.06 per unit of risk. If you would invest  3,654  in British American Tobacco on December 17, 2024 and sell it today you would earn a total of  530.00  from holding British American Tobacco or generate 14.5% return on investment over 90 days.

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

British American Tobacco  vs.  KVH Industries

British American Tobacco

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, British Amer demonstrated solid returns over the last few months and may actually be approaching a breakup point.

KVH Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days KVH Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's technical indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with British Amer and KVH Industries

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

The idea behind British American Tobacco and KVH Industries 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.