Correlation Between Firstrand and British Amer

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

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

Diversification Opportunities for Firstrand and British Amer

-0.17

Correlation Coefficient

Firstrand  British Amer

Good diversification

The 3 months correlation between Firstrand and British is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Firstrand 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 Firstrand 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 Firstrand 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 Firstrand i.e., Firstrand and British Amer go up and down completely randomly.

Pair Corralation between Firstrand and British Amer

Assuming the 90 days trading horizon Firstrand is expected to generate 1.47 times more return on investment than British Amer. However, Firstrand is 1.47 times more volatile than British American Tobacco. It trades about 0.27 of its potential returns per unit of risk. British American Tobacco is currently generating about 0.18 per unit of risk. If you would invest  763,000  in Firstrand on September 18, 2024 and sell it today you would earn a total of  50,900  from holding Firstrand or generate 6.67% return on investment over 90 days.

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

Firstrand  vs.  British American Tobacco

Firstrand

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Firstrand has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Firstrand is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

British American Tobacco

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, British Amer is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Firstrand and British Amer

The main advantage of trading using opposite Firstrand and British Amer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Firstrand 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 Firstrand 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.