Correlation Between British American and United States
Can any of the company-specific risk be diversified away by investing in both British American and United States 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 United States 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 United States Steel, you can compare the effects of market volatilities on British American and United States 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 United States. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and United States.
Diversification Opportunities for British American and United States
-0.15 | Correlation Coefficient |
Good diversification
The 3 months correlation between British and United is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and United States Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United States Steel 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 United States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United States Steel has no effect on the direction of British American i.e., British American and United States go up and down completely randomly.
Pair Corralation between British American and United States
Assuming the 90 days trading horizon British American is expected to generate 3.54 times less return on investment than United States. But when comparing it to its historical volatility, British American Tobacco is 2.01 times less risky than United States. It trades about 0.03 of its potential returns per unit of risk. United States Steel is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest 14,031 in United States Steel on August 27, 2024 and sell it today you would earn a total of 8,387 from holding United States Steel or generate 59.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 91.78% |
| Values | Daily Returns |
British American Tobacco vs. United States Steel
Performance |
| Timeline |
| British American Tobacco |
| United States Steel |
British American and United States Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with British American and United States
The main advantage of trading using opposite British American and United States positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American position performs unexpectedly, United States 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 United States will offset losses from the drop in United States' 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 |
| United States vs. Companhia Siderrgica Nacional | United States vs. Fras le SA | United States vs. Clave Indices De | United States vs. BTG Pactual Logstica |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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