Correlation Between GENERAL and British Amer

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

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

Diversification Opportunities for GENERAL and British Amer

-0.11

Correlation Coefficient

GENERAL  British Amer

Good diversification

The 3 months correlation between GENERAL and British is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding GENERAL ELEC CAP 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 GENERAL 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 GENERAL ELEC CAP 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 GENERAL i.e., GENERAL and British Amer go up and down completely randomly.

Pair Corralation between GENERAL and British Amer

Assuming the 90 days trading horizon GENERAL ELEC CAP is expected to generate 1.61 times more return on investment than British Amer. However, GENERAL is 1.61 times more volatile than British American Tobacco. It trades about -0.03 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  9,982  in GENERAL ELEC CAP on October 11, 2024 and sell it today you would lose (36.00) from holding GENERAL ELEC CAP or give up 0.36% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	57.14%
Values	Daily Returns

GENERAL ELEC CAP  vs.  British American Tobacco

GENERAL ELEC CAP

Risk-Adjusted Performance

0 of 100

Very Weak

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

British American Tobacco

Risk-Adjusted Performance

9 of 100

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. Despite fairly unfluctuating basic indicators, British Amer may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with GENERAL and British Amer

The main advantage of trading using opposite GENERAL and British Amer positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GENERAL 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 GENERAL ELEC CAP 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.