Correlation Between Scottish Mortgage and British American
Can any of the company-specific risk be diversified away by investing in both Scottish Mortgage 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 Scottish Mortgage and British American into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Scottish Mortgage Investment and British American Tobacco, you can compare the effects of market volatilities on Scottish Mortgage 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 Scottish Mortgage with a short position of British American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Scottish Mortgage and British American.
Diversification Opportunities for Scottish Mortgage and British American
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Scottish and British is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Scottish Mortgage Investment 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 Scottish Mortgage 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 Scottish Mortgage Investment 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 Scottish Mortgage i.e., Scottish Mortgage and British American go up and down completely randomly.
Pair Corralation between Scottish Mortgage and British American
Assuming the 90 days trading horizon Scottish Mortgage Investment is expected to under-perform the British American. But the stock apears to be less risky and, when comparing its historical volatility, Scottish Mortgage Investment is 1.23 times less risky than British American. The stock trades about -0.24 of its potential returns per unit of risk. The British American Tobacco is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest 3,986 in British American Tobacco on December 8, 2024 and sell it today you would lose (239.00) from holding British American Tobacco or give up 6.0% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Scottish Mortgage Investment vs. British American Tobacco
Performance |
| Timeline |
| Scottish Mortgage |
| British American Tobacco |
Scottish Mortgage and British American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Scottish Mortgage and British American
The main advantage of trading using opposite Scottish Mortgage and British American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Scottish Mortgage 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.| Scottish Mortgage vs. DATATEC LTD 2 | ||
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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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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