Correlation Between Sungei Bagan and British American
Can any of the company-specific risk be diversified away by investing in both Sungei Bagan 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 Sungei Bagan and British American into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Sungei Bagan Rubber and British American Tobacco, you can compare the effects of market volatilities on Sungei Bagan 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 Sungei Bagan with a short position of British American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sungei Bagan and British American.
Diversification Opportunities for Sungei Bagan and British American
-0.34 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Sungei and British is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Sungei Bagan Rubber 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 Sungei Bagan 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 Sungei Bagan Rubber 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 Sungei Bagan i.e., Sungei Bagan and British American go up and down completely randomly.
Pair Corralation between Sungei Bagan and British American
Assuming the 90 days trading horizon Sungei Bagan Rubber is expected to generate 1.81 times more return on investment than British American. However, Sungei Bagan is 1.81 times more volatile than British American Tobacco. It trades about 0.06 of its potential returns per unit of risk. British American Tobacco is currently generating about -0.04 per unit of risk. If you would invest 336.00 in Sungei Bagan Rubber on August 27, 2024 and sell it today you would earn a total of 219.00 from holding Sungei Bagan Rubber or generate 65.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 91.53% |
| Values | Daily Returns |
Sungei Bagan Rubber vs. British American Tobacco
Performance |
| Timeline |
| Sungei Bagan Rubber |
| British American Tobacco |
Sungei Bagan and British American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sungei Bagan and British American
The main advantage of trading using opposite Sungei Bagan and British American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sungei Bagan 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 Sungei Bagan Rubber 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.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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.
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