Correlation Between British American and Summit Materials
Can any of the company-specific risk be diversified away by investing in both British American and Summit Materials 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 British American and Summit Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between British American Tobacco and Summit Materials Cl, you can compare the effects of market volatilities on British American and Summit Materials 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 British American with a short position of Summit Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and Summit Materials.
Diversification Opportunities for British American and Summit Materials
0.71 | Correlation Coefficient |
Poor diversification
The 3 months correlation between British and Summit is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Summit Materials Cl in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Summit Materials and British American 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 British American Tobacco are associated (or correlated) with Summit Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Summit Materials has no effect on the direction of British American i.e., British American and Summit Materials go up and down completely randomly.
Pair Corralation between British American and Summit Materials
Assuming the 90 days trading horizon British American Tobacco is expected to under-perform the Summit Materials. In addition to that, British American is 2.12 times more volatile than Summit Materials Cl. It trades about -0.12 of its total potential returns per unit of risk. Summit Materials Cl is currently generating about 0.23 per unit of volatility. If you would invest 5,097 in Summit Materials Cl on October 12, 2024 and sell it today you would earn a total of 112.00 from holding Summit Materials Cl or generate 2.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
British American Tobacco vs. Summit Materials Cl
Performance |
| Timeline |
| British American Tobacco |
| Summit Materials |
British American and Summit Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with British American and Summit Materials
The main advantage of trading using opposite British American and Summit Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American position performs unexpectedly, Summit Materials 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 Summit Materials will offset losses from the drop in Summit Materials' long position.| British American vs. Monks Investment Trust | British American vs. Smithson Investment Trust | British American vs. EJF Investments | British American vs. Zoom Video Communications |
| Summit Materials vs. Young Cos Brewery | Summit Materials vs. Adriatic Metals | Summit Materials vs. Gaztransport et Technigaz | Summit Materials vs. Alien Metals |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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