Correlation Between British American and Clean Energy
Can any of the company-specific risk be diversified away by investing in both British American and Clean Energy 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 Clean Energy 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 Clean Energy Fuels, you can compare the effects of market volatilities on British American and Clean Energy 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 Clean Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and Clean Energy.
Diversification Opportunities for British American and Clean Energy
-0.04 | Correlation Coefficient |
Good diversification
The 3 months correlation between British and Clean is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Clean Energy Fuels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clean Energy Fuels 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 Clean Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clean Energy Fuels has no effect on the direction of British American i.e., British American and Clean Energy go up and down completely randomly.
Pair Corralation between British American and Clean Energy
Assuming the 90 days trading horizon British American is expected to generate 1.45 times less return on investment than Clean Energy. But when comparing it to its historical volatility, British American Tobacco is 7.43 times less risky than Clean Energy. It trades about 0.76 of its potential returns per unit of risk. Clean Energy Fuels is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 255.00 in Clean Energy Fuels on September 1, 2024 and sell it today you would earn a total of 39.00 from holding Clean Energy Fuels or generate 15.29% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
British American Tobacco vs. Clean Energy Fuels
Performance |
| Timeline |
| British American Tobacco |
| Clean Energy Fuels |
British American and Clean Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with British American and Clean Energy
The main advantage of trading using opposite British American and Clean Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American position performs unexpectedly, Clean Energy 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 Clean Energy will offset losses from the drop in Clean Energy's long position.| British American vs. Air Transport Services | British American vs. Corporate Office Properties | British American vs. Columbia Sportswear | British American vs. Ming Le Sports |
| Clean Energy vs. Japan Medical Dynamic | Clean Energy vs. AVITA Medical | Clean Energy vs. Cardinal Health | Clean Energy vs. Diamyd Medical AB |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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