Correlation Between British American and PACCAR
Can any of the company-specific risk be diversified away by investing in both British American and PACCAR 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 PACCAR 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 PACCAR Inc, you can compare the effects of market volatilities on British American and PACCAR 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 PACCAR. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and PACCAR.
Diversification Opportunities for British American and PACCAR
0.48 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between British and PACCAR is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and PACCAR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PACCAR Inc 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 PACCAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PACCAR Inc has no effect on the direction of British American i.e., British American and PACCAR go up and down completely randomly.
Pair Corralation between British American and PACCAR
Assuming the 90 days trading horizon British American Tobacco is expected to generate 0.62 times more return on investment than PACCAR. However, British American Tobacco is 1.61 times less risky than PACCAR. It trades about 0.0 of its potential returns per unit of risk. PACCAR Inc is currently generating about 0.0 per unit of risk. If you would invest 3,542 in British American Tobacco on October 15, 2024 and sell it today you would lose (2.00) from holding British American Tobacco or give up 0.06% 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. PACCAR Inc
Performance |
| Timeline |
| British American Tobacco |
| PACCAR Inc |
British American and PACCAR Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with British American and PACCAR
The main advantage of trading using opposite British American and PACCAR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American position performs unexpectedly, PACCAR 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 PACCAR will offset losses from the drop in PACCAR's long position.| British American vs. MagnaChip Semiconductor Corp | British American vs. NXP Semiconductors NV | British American vs. Heidelberg Materials AG | British American vs. Goodyear Tire Rubber |
| PACCAR vs. JAPAN TOBACCO UNSPADR12 | PACCAR vs. CyberArk Software | PACCAR vs. British American Tobacco | PACCAR vs. ASURE SOFTWARE |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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