Correlation Between British American and Alphabet
Can any of the company-specific risk be diversified away by investing in both British American and Alphabet 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 Alphabet 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 Alphabet, you can compare the effects of market volatilities on British American and Alphabet 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 Alphabet. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and Alphabet.
Diversification Opportunities for British American and Alphabet
-0.21 | Correlation Coefficient |
Very good diversification
The 3 months correlation between British and Alphabet is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Alphabet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alphabet 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 Alphabet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alphabet has no effect on the direction of British American i.e., British American and Alphabet go up and down completely randomly.
Pair Corralation between British American and Alphabet
Assuming the 90 days trading horizon British American Tobacco is expected to generate 0.49 times more return on investment than Alphabet. However, British American Tobacco is 2.03 times less risky than Alphabet. It trades about 0.43 of its potential returns per unit of risk. Alphabet is currently generating about 0.08 per unit of risk. If you would invest 3,967 in British American Tobacco on August 24, 2024 and sell it today you would earn a total of 385.00 from holding British American Tobacco or generate 9.71% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
British American Tobacco vs. Alphabet
Performance |
| Timeline |
| British American Tobacco |
| Alphabet |
British American and Alphabet Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with British American and Alphabet
The main advantage of trading using opposite British American and Alphabet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American position performs unexpectedly, Alphabet 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 Alphabet will offset losses from the drop in Alphabet's long position.| British American vs. Fras le SA | British American vs. Clave Indices De | British American vs. BTG Pactual Logstica | British American vs. Telefonaktiebolaget LM Ericsson |
| Alphabet vs. Livetech da Bahia | Alphabet vs. BIONTECH SE DRN | Alphabet vs. Bio Techne | Alphabet vs. Dell Technologies |
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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.
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