Correlation Between British American and Nestle Bhd
Can any of the company-specific risk be diversified away by investing in both British American and Nestle Bhd 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 Nestle Bhd 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 Nestle Bhd, you can compare the effects of market volatilities on British American and Nestle Bhd 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 Nestle Bhd. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and Nestle Bhd.
Diversification Opportunities for British American and Nestle Bhd
0.46 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between British and Nestle is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Nestle Bhd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nestle Bhd 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 Nestle Bhd. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nestle Bhd has no effect on the direction of British American i.e., British American and Nestle Bhd go up and down completely randomly.
Pair Corralation between British American and Nestle Bhd
Assuming the 90 days trading horizon British American Tobacco is expected to generate 0.84 times more return on investment than Nestle Bhd. However, British American Tobacco is 1.19 times less risky than Nestle Bhd. It trades about -0.29 of its potential returns per unit of risk. Nestle Bhd is currently generating about -0.63 per unit of risk. If you would invest 746.00 in British American Tobacco on November 2, 2024 and sell it today you would lose (27.00) from holding British American Tobacco or give up 3.62% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
British American Tobacco vs. Nestle Bhd
Performance |
| Timeline |
| British American Tobacco |
| Nestle Bhd |
British American and Nestle Bhd Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with British American and Nestle Bhd
The main advantage of trading using opposite British American and Nestle Bhd positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American position performs unexpectedly, Nestle Bhd 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 Nestle Bhd will offset losses from the drop in Nestle Bhd's long position.| British American vs. Press Metal Bhd | British American vs. Riverview Rubber Estates | British American vs. Ho Hup Construction | British American vs. BP Plastics Holding |
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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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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