Correlation Between Coffee Holding and British Amer

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

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

Diversification Opportunities for Coffee Holding and British Amer

0.61

Correlation Coefficient

Coffee Holding  British Amer

Poor diversification

The 3 months correlation between Coffee and British is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Coffee Holding Co 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 Coffee Holding 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 Coffee Holding Co 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 Coffee Holding i.e., Coffee Holding and British Amer go up and down completely randomly.

Pair Corralation between Coffee Holding and British Amer

Considering the 90-day investment horizon Coffee Holding Co is expected to generate 3.53 times more return on investment than British Amer. However, Coffee Holding is 3.53 times more volatile than British American Tobacco. It trades about 0.15 of its potential returns per unit of risk. British American Tobacco is currently generating about 0.05 per unit of risk. If you would invest  407.00  in Coffee Holding Co on November 28, 2024 and sell it today you would earn a total of  198.00  from holding Coffee Holding Co or generate 48.65% return on investment over 90 days.

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

Coffee Holding Co  vs.  British American Tobacco

Coffee Holding

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Coffee Holding Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Coffee Holding sustained solid returns over the last few months and may actually be approaching a breakup point.

British American Tobacco

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 3 (%) 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 Coffee Holding and British Amer

The main advantage of trading using opposite Coffee Holding and British Amer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coffee Holding 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 Coffee Holding Co 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.