Correlation Between BRIT AMER and International Consolidated
Can any of the company-specific risk be diversified away by investing in both BRIT AMER and International Consolidated 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 BRIT AMER and International Consolidated into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BRIT AMER TOBACCO and International Consolidated Airlines, you can compare the effects of market volatilities on BRIT AMER and International Consolidated 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 BRIT AMER with a short position of International Consolidated. Check out your portfolio center. Please also check ongoing floating volatility patterns of BRIT AMER and International Consolidated.
Diversification Opportunities for BRIT AMER and International Consolidated
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BRIT and International is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding BRIT AMER TOBACCO and International Consolidated Air in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Consolidated and BRIT AMER 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 BRIT AMER TOBACCO are associated (or correlated) with International Consolidated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Consolidated has no effect on the direction of BRIT AMER i.e., BRIT AMER and International Consolidated go up and down completely randomly.
Pair Corralation between BRIT AMER and International Consolidated
Assuming the 90 days trading horizon BRIT AMER is expected to generate 8.68 times less return on investment than International Consolidated. But when comparing it to its historical volatility, BRIT AMER TOBACCO is 1.73 times less risky than International Consolidated. It trades about 0.02 of its potential returns per unit of risk. International Consolidated Airlines is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 143.00 in International Consolidated Airlines on September 13, 2024 and sell it today you would earn a total of 199.00 from holding International Consolidated Airlines or generate 139.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BRIT AMER TOBACCO vs. International Consolidated Air
Performance |
| Timeline |
| BRIT AMER TOBACCO |
| International Consolidated |
BRIT AMER and International Consolidated Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BRIT AMER and International Consolidated
The main advantage of trading using opposite BRIT AMER and International Consolidated positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BRIT AMER position performs unexpectedly, International Consolidated 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 International Consolidated will offset losses from the drop in International Consolidated's long position.The idea behind BRIT AMER TOBACCO and International Consolidated Airlines 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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