Correlation Between Tootsie Roll and British Amer

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

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

Diversification Opportunities for Tootsie Roll and British Amer

0.66

Correlation Coefficient

Tootsie Roll  British Amer

Poor diversification

The 3 months correlation between Tootsie and British is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Tootsie Roll Industries 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 Tootsie Roll 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 Tootsie Roll Industries 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 Tootsie Roll i.e., Tootsie Roll and British Amer go up and down completely randomly.

Pair Corralation between Tootsie Roll and British Amer

Allowing for the 90-day total investment horizon Tootsie Roll Industries is expected to generate 1.38 times more return on investment than British Amer. However, Tootsie Roll is 1.38 times more volatile than British American Tobacco. It trades about 0.11 of its potential returns per unit of risk. British American Tobacco is currently generating about 0.03 per unit of risk. If you would invest  3,028  in Tootsie Roll Industries on September 1, 2024 and sell it today you would earn a total of  282.00  from holding Tootsie Roll Industries or generate 9.31% return on investment over 90 days.

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

Tootsie Roll Industries  vs.  British American Tobacco

Tootsie Roll Industries

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tootsie Roll Industries are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Tootsie Roll may actually be approaching a critical reversion point that can send shares even higher in December 2024.

British American Tobacco

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 2 (%) 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 Tootsie Roll and British Amer

The main advantage of trading using opposite Tootsie Roll and British Amer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tootsie Roll 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 Tootsie Roll Industries 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.