Correlation Between American Green and British Amer

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

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

Diversification Opportunities for American Green and British Amer

0.54

Correlation Coefficient

American Green  British Amer

Very weak diversification

The 3 months correlation between American and British is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding American Green 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 American Green 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 American Green are associated (or correlated) with British Amer. 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 American Green i.e., American Green and British Amer go up and down completely randomly.

Pair Corralation between American Green and British Amer

Given the investment horizon of 90 days American Green is expected to generate 20.63 times more return on investment than British Amer. However, American Green is 20.63 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 0.02 per unit of risk. If you would invest  0.11  in American Green on September 28, 2024 and sell it today you would lose (0.06) from holding American Green or give up 54.55% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

American Green  vs.  British American Tobacco

American Green

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Green are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat inconsistent fundamental drivers, American Green sustained solid returns over the last few months and may actually be approaching a breakup point.

British American Tobacco

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, British Amer is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with American Green and British Amer

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

The idea behind American Green 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 Commodity Directory module to find actively traded commodities issued by global exchanges.