Correlation Between Hartford Financial and British American

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

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

Diversification Opportunities for Hartford Financial and British American

0.62

Correlation Coefficient

Hartford Financial  British American

Poor diversification

The 3 months correlation between Hartford and British is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding The Hartford Financial 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 Hartford Financial 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 The Hartford Financial 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 Hartford Financial i.e., Hartford Financial and British American go up and down completely randomly.

Pair Corralation between Hartford Financial and British American

Assuming the 90 days trading horizon Hartford Financial is expected to generate 31.87 times less return on investment than British American. But when comparing it to its historical volatility, The Hartford Financial is 19.08 times less risky than British American. It trades about 0.16 of its potential returns per unit of risk. British American Tobacco is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  3,996  in British American Tobacco on October 7, 2024 and sell it today you would earn a total of  528.00  from holding British American Tobacco or generate 13.21% return on investment over 90 days.

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

The Hartford Financial  vs.  British American Tobacco

The Hartford Financial

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Hartford Financial are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong forward indicators, Hartford Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

British American Tobacco

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 19 (%) 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 Hartford Financial and British American

The main advantage of trading using opposite Hartford Financial and British American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hartford Financial 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 The Hartford Financial 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.