Correlation Between CAFCA and BRITISH AMERICAN

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

By analyzing existing cross correlation between CAFCA LIMITED and BRITISH AMERICAN TOBACCO, you can compare the effects of market volatilities on CAFCA 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 CAFCA with a short position of BRITISH AMERICAN. Check out your portfolio center. Please also check ongoing floating volatility patterns of CAFCA and BRITISH AMERICAN.

Diversification Opportunities for CAFCA and BRITISH AMERICAN

0.28

Correlation Coefficient

CAFCA  BRITISH AMERICAN

Modest diversification

The 3 months correlation between CAFCA and BRITISH is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding CAFCA LIMITED 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 CAFCA 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 CAFCA LIMITED 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 CAFCA i.e., CAFCA and BRITISH AMERICAN go up and down completely randomly.

Pair Corralation between CAFCA and BRITISH AMERICAN

Assuming the 90 days trading horizon CAFCA is expected to generate 1.2 times less return on investment than BRITISH AMERICAN. But when comparing it to its historical volatility, CAFCA LIMITED is 1.56 times less risky than BRITISH AMERICAN. It trades about 0.19 of its potential returns per unit of risk. BRITISH AMERICAN TOBACCO is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  260,130  in BRITISH AMERICAN TOBACCO on October 12, 2024 and sell it today you would earn a total of  665,870  from holding BRITISH AMERICAN TOBACCO or generate 255.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.47%
Values	Daily Returns

CAFCA LIMITED  vs.  BRITISH AMERICAN TOBACCO

CAFCA LIMITED

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CAFCA LIMITED are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent fundamental indicators, CAFCA showed solid returns over the last few months and may actually be approaching a breakup point.

BRITISH AMERICAN TOBACCO

Risk-Adjusted Performance

7 of 100

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. Despite fairly weak forward indicators, BRITISH AMERICAN demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CAFCA and BRITISH AMERICAN

The main advantage of trading using opposite CAFCA and BRITISH AMERICAN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CAFCA 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 CAFCA LIMITED 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.

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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.