Correlation Between Glencore PLC and British Amer

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

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

Diversification Opportunities for Glencore PLC and British Amer

-0.76

Correlation Coefficient

Glencore PLC  British Amer

Pay attention - limited upside

The 3 months correlation between Glencore and British is -0.76. Overlapping area represents the amount of risk that can be diversified away by holding Glencore PLC 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 Glencore PLC 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 Glencore PLC 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 Glencore PLC i.e., Glencore PLC and British Amer go up and down completely randomly.

Pair Corralation between Glencore PLC and British Amer

Assuming the 90 days trading horizon Glencore PLC is expected to under-perform the British Amer. In addition to that, Glencore PLC is 1.46 times more volatile than British American Tobacco. It trades about -0.09 of its total potential returns per unit of risk. British American Tobacco is currently generating about 0.13 per unit of volatility. If you would invest  5,311,665  in British American Tobacco on September 18, 2024 and sell it today you would earn a total of  1,479,535  from holding British American Tobacco or generate 27.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.4%
Values	Daily Returns

Glencore PLC  vs.  British American Tobacco

Glencore PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Glencore PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Glencore PLC 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 Glencore PLC and British Amer

The main advantage of trading using opposite Glencore PLC and British Amer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Glencore PLC 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 Glencore PLC 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.