Correlation Between Kap Industrial and British Amer

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

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

Diversification Opportunities for Kap Industrial and British Amer

-0.46

Correlation Coefficient

Kap Industrial  British Amer

Very good diversification

The 3 months correlation between Kap and British is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Kap Industrial Holdings 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 Kap Industrial 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 Kap Industrial Holdings 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 Kap Industrial i.e., Kap Industrial and British Amer go up and down completely randomly.

Pair Corralation between Kap Industrial and British Amer

Assuming the 90 days trading horizon Kap Industrial Holdings is expected to under-perform the British Amer. In addition to that, Kap Industrial is 1.85 times more volatile than British American Tobacco. It trades about -0.05 of its total potential returns per unit of risk. British American Tobacco is currently generating about 0.12 per unit of volatility. If you would invest  6,632,849  in British American Tobacco on December 29, 2024 and sell it today you would earn a total of  814,751  from holding British American Tobacco or generate 12.28% return on investment over 90 days.

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

Kap Industrial Holdings  vs.  British American Tobacco

Kap Industrial Holdings

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kap Industrial Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

British American Tobacco

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, British Amer may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Kap Industrial and British Amer

The main advantage of trading using opposite Kap Industrial and British Amer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Kap Industrial 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 Kap Industrial Holdings 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.