Correlation Between Turning Point and British Amer

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

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

Diversification Opportunities for Turning Point and British Amer

0.28

Correlation Coefficient

Turning Point  British Amer

Modest diversification

The 3 months correlation between Turning and British is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Turning Point Brands 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 Turning Point 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 Turning Point Brands 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 Turning Point i.e., Turning Point and British Amer go up and down completely randomly.

Pair Corralation between Turning Point and British Amer

Considering the 90-day investment horizon Turning Point is expected to generate 27.69 times less return on investment than British Amer. In addition to that, Turning Point is 1.64 times more volatile than British American Tobacco. It trades about 0.0 of its total potential returns per unit of risk. British American Tobacco is currently generating about 0.15 per unit of volatility. If you would invest  3,540  in British American Tobacco on December 29, 2024 and sell it today you would earn a total of  511.00  from holding British American Tobacco or generate 14.44% return on investment over 90 days.

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

Turning Point Brands  vs.  British American Tobacco

Turning Point Brands

Risk-Adjusted Performance

Very Weak

Over the last 90 days Turning Point Brands has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Turning Point is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

British American Tobacco

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating basic indicators, British Amer demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Turning Point and British Amer

The main advantage of trading using opposite Turning Point and British Amer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Turning Point 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 Turning Point Brands 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.