Correlation Between Food Life and British American
Can any of the company-specific risk be diversified away by investing in both Food Life 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 Food Life and British American into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Food Life Companies and British American Tobacco, you can compare the effects of market volatilities on Food Life 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 Food Life with a short position of British American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Food Life and British American.
Diversification Opportunities for Food Life and British American
0.31 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Food and British is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Food Life Companies 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 Food Life 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 Food Life Companies 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 Food Life i.e., Food Life and British American go up and down completely randomly.
Pair Corralation between Food Life and British American
Assuming the 90 days horizon Food Life is expected to generate 1.23 times less return on investment than British American. In addition to that, Food Life is 2.36 times more volatile than British American Tobacco. It trades about 0.07 of its total potential returns per unit of risk. British American Tobacco is currently generating about 0.2 per unit of volatility. If you would invest 2,675 in British American Tobacco on September 3, 2024 and sell it today you would earn a total of 920.00 from holding British American Tobacco or generate 34.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Food Life Companies vs. British American Tobacco
Performance |
| Timeline |
| Food Life Companies |
| British American Tobacco |
Food Life and British American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Food Life and British American
The main advantage of trading using opposite Food Life and British American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Food Life 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.| Food Life vs. McDonalds | Food Life vs. Chipotle Mexican Grill | Food Life vs. Superior Plus Corp | Food Life vs. NMI Holdings |
| British American vs. British American Tobacco | British American vs. Japan Tobacco | British American vs. JAPAN TOBACCO UNSPADR12 | British American vs. Imperial Brands 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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