Correlation Between VULCAN MATERIALS and British American

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

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

Diversification Opportunities for VULCAN MATERIALS and British American

0.69

Correlation Coefficient

VULCAN MATERIALS  British American

Poor diversification

The 3 months correlation between VULCAN and British is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding VULCAN MATERIALS 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 VULCAN MATERIALS 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 VULCAN MATERIALS are associated (or correlated) with British American. 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 VULCAN MATERIALS i.e., VULCAN MATERIALS and British American go up and down completely randomly.

Pair Corralation between VULCAN MATERIALS and British American

Assuming the 90 days trading horizon VULCAN MATERIALS is expected to under-perform the British American. In addition to that, VULCAN MATERIALS is 2.15 times more volatile than British American Tobacco. It trades about -0.31 of its total potential returns per unit of risk. British American Tobacco is currently generating about 0.03 per unit of volatility. If you would invest  3,490  in British American Tobacco on October 4, 2024 and sell it today you would earn a total of  12.00  from holding British American Tobacco or generate 0.34% return on investment over 90 days.

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

VULCAN MATERIALS  vs.  British American Tobacco

VULCAN MATERIALS

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VULCAN MATERIALS are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, VULCAN MATERIALS unveiled solid returns over the last few months and may actually be approaching a breakup point.

British American Tobacco

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, British American may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with VULCAN MATERIALS and British American

The main advantage of trading using opposite VULCAN MATERIALS and British American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VULCAN MATERIALS position performs unexpectedly, British American 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 American will offset losses from the drop in British American's long position.

The idea behind VULCAN MATERIALS 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.