Correlation Between British American and Salesforce
Can any of the company-specific risk be diversified away by investing in both British American and Salesforce 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 Salesforce 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 Salesforce, you can compare the effects of market volatilities on British American and Salesforce 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 Salesforce. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and Salesforce.
Diversification Opportunities for British American and Salesforce
0.86 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between British and Salesforce is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Salesforce in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Salesforce 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 Salesforce. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Salesforce has no effect on the direction of British American i.e., British American and Salesforce go up and down completely randomly.
Pair Corralation between British American and Salesforce
Assuming the 90 days trading horizon British American is expected to generate 4.01 times less return on investment than Salesforce. But when comparing it to its historical volatility, British American Tobacco is 1.83 times less risky than Salesforce. It trades about 0.04 of its potential returns per unit of risk. Salesforce is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 15,890 in Salesforce on October 25, 2024 and sell it today you would earn a total of 16,075 from holding Salesforce or generate 101.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
British American Tobacco vs. Salesforce
Performance |
| Timeline |
| British American Tobacco |
| Salesforce |
British American and Salesforce Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with British American and Salesforce
The main advantage of trading using opposite British American and Salesforce positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American position performs unexpectedly, Salesforce 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 Salesforce will offset losses from the drop in Salesforce's long position.| British American vs. Japan Tobacco | British American vs. American Public Education | British American vs. Scandinavian Tobacco Group | British American vs. EEDUCATION ALBERT AB |
| Salesforce vs. Air Transport Services | Salesforce vs. TreeHouse Foods | Salesforce vs. CAL MAINE FOODS | Salesforce vs. PURE FOODS TASMANIA |
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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.
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