Correlation Between British Amer and ENTERGY

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

Diversification Opportunities for British Amer and ENTERGY

0.24

Correlation Coefficient

British Amer  ENTERGY

Modest diversification

The 3 months correlation between British and ENTERGY is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and ENTERGY TEX INC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ENTERGY TEX INC 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 ENTERGY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ENTERGY TEX INC has no effect on the direction of British Amer i.e., British Amer and ENTERGY go up and down completely randomly.

Pair Corralation between British Amer and ENTERGY

Considering the 90-day investment horizon British American Tobacco is expected to generate 3.14 times more return on investment than ENTERGY. However, British Amer is 3.14 times more volatile than ENTERGY TEX INC. It trades about 0.14 of its potential returns per unit of risk. ENTERGY TEX INC is currently generating about 0.02 per unit of risk. If you would invest  3,626  in British American Tobacco on December 24, 2024 and sell it today you would earn a total of  457.00  from holding British American Tobacco or generate 12.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	73.33%
Values	Daily Returns

British American Tobacco  vs.  ENTERGY TEX INC

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 10 (%) 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.

ENTERGY TEX INC

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in ENTERGY TEX INC are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, ENTERGY is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with British Amer and ENTERGY

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

The idea behind British American Tobacco and ENTERGY TEX INC 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.