Correlation Between British American and UDR
Can any of the company-specific risk be diversified away by investing in both British American and UDR 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 UDR 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 UDR Inc, you can compare the effects of market volatilities on British American and UDR 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 UDR. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and UDR.
Diversification Opportunities for British American and UDR
0.56 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between British and UDR is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and UDR Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UDR 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 UDR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UDR Inc has no effect on the direction of British American i.e., British American and UDR go up and down completely randomly.
Pair Corralation between British American and UDR
Assuming the 90 days trading horizon British American Tobacco is expected to generate 0.55 times more return on investment than UDR. However, British American Tobacco is 1.82 times less risky than UDR. It trades about 0.55 of its potential returns per unit of risk. UDR Inc is currently generating about 0.19 per unit of risk. If you would invest 3,231 in British American Tobacco on August 28, 2024 and sell it today you would earn a total of 325.00 from holding British American Tobacco or generate 10.06% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
British American Tobacco vs. UDR Inc
Performance |
| Timeline |
| British American Tobacco |
| UDR Inc |
British American and UDR Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with British American and UDR
The main advantage of trading using opposite British American and UDR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American position performs unexpectedly, UDR 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 UDR will offset losses from the drop in UDR's long position.The idea behind British American Tobacco and UDR Inc 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.| UDR vs. Japan Tobacco | UDR vs. DEVRY EDUCATION GRP | UDR vs. Strategic Education | UDR vs. British American Tobacco |
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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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