Correlation Between FNB ETN and British Amer

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

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

Diversification Opportunities for FNB ETN and British Amer

0.78

Correlation Coefficient

FNB ETN  British Amer

Poor diversification

The 3 months correlation between FNB and British is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding FNB ETN JPMORGQ 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 FNB ETN 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 FNB ETN JPMORGQ 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 FNB ETN i.e., FNB ETN and British Amer go up and down completely randomly.

Pair Corralation between FNB ETN and British Amer

Assuming the 90 days trading horizon FNB ETN JPMORGQ is expected to generate 1.29 times more return on investment than British Amer. However, FNB ETN is 1.29 times more volatile than British American Tobacco. It trades about 0.19 of its potential returns per unit of risk. British American Tobacco is currently generating about 0.07 per unit of risk. If you would invest  150,300  in FNB ETN JPMORGQ on October 5, 2024 and sell it today you would earn a total of  105,900  from holding FNB ETN JPMORGQ or generate 70.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	54.4%
Values	Daily Returns

FNB ETN JPMORGQ  vs.  British American Tobacco

FNB ETN JPMORGQ

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days FNB ETN JPMORGQ has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat weak basic indicators, FNB ETN sustained solid returns over the last few months and may actually be approaching a breakup point.

British American Tobacco

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, British Amer exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FNB ETN and British Amer

The main advantage of trading using opposite FNB ETN and British Amer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FNB ETN 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 FNB ETN JPMORGQ 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.