Correlation Between British American and Capital Drilling
Can any of the company-specific risk be diversified away by investing in both British American and Capital Drilling 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 Capital Drilling 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 Capital Drilling, you can compare the effects of market volatilities on British American and Capital Drilling 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 Capital Drilling. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and Capital Drilling.
Diversification Opportunities for British American and Capital Drilling
-0.61 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between British and Capital is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Capital Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Capital Drilling 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 Capital Drilling. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Capital Drilling has no effect on the direction of British American i.e., British American and Capital Drilling go up and down completely randomly.
Pair Corralation between British American and Capital Drilling
Assuming the 90 days trading horizon British American Tobacco is expected to generate 0.47 times more return on investment than Capital Drilling. However, British American Tobacco is 2.14 times less risky than Capital Drilling. It trades about 0.27 of its potential returns per unit of risk. Capital Drilling is currently generating about -0.11 per unit of risk. If you would invest 3,645 in British American Tobacco on November 3, 2024 and sell it today you would earn a total of 327.00 from holding British American Tobacco or generate 8.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
British American Tobacco vs. Capital Drilling
Performance |
| Timeline |
| British American Tobacco |
| Capital Drilling |
British American and Capital Drilling Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with British American and Capital Drilling
The main advantage of trading using opposite British American and Capital Drilling positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American position performs unexpectedly, Capital Drilling 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 Capital Drilling will offset losses from the drop in Capital Drilling's long position.| British American vs. Edita Food Industries | British American vs. Jupiter Fund Management | British American vs. Leroy Seafood Group | British American vs. Applied Materials |
| Capital Drilling vs. Samsung Electronics Co | Capital Drilling vs. Wheaton Precious Metals | Capital Drilling vs. STMicroelectronics NV | Capital Drilling vs. Bloomsbury Publishing Plc |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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