Correlation Between Corteva and British American

Can any of the company-specific risk be diversified away by investing in both Corteva and British American 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 Corteva and British American into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Corteva and British American Tobacco, you can compare the effects of market volatilities on Corteva and British American 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 Corteva with a short position of British American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Corteva and British American.

Diversification Opportunities for Corteva and British American

0.79

Correlation Coefficient

Corteva  British American

Poor diversification

The 3 months correlation between Corteva and British is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Corteva and British American Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on British American Tobacco and Corteva 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 Corteva are associated (or correlated) with British American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of British American Tobacco has no effect on the direction of Corteva i.e., Corteva and British American go up and down completely randomly.

Pair Corralation between Corteva and British American

Assuming the 90 days trading horizon Corteva is expected to generate 1.29 times more return on investment than British American. However, Corteva is 1.29 times more volatile than British American Tobacco. It trades about 0.07 of its potential returns per unit of risk. British American Tobacco is currently generating about 0.08 per unit of risk. If you would invest  6,372  in Corteva on October 4, 2024 and sell it today you would earn a total of  2,374  from holding Corteva or generate 37.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	71.77%
Values	Daily Returns

Corteva  vs.  British American Tobacco

Corteva

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Corteva are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Corteva may actually be approaching a critical reversion point that can send shares even higher in February 2025.

British American Tobacco

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, British American sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Corteva and British American

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

The idea behind Corteva and British American Tobacco 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..