Correlation Between British American and Turning Point
Can any of the company-specific risk be diversified away by investing in both British American and Turning Point 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 Turning Point 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 Turning Point Brands, you can compare the effects of market volatilities on British American and Turning Point 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 Turning Point. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and Turning Point.
Diversification Opportunities for British American and Turning Point
-0.24 | Correlation Coefficient |
Very good diversification
The 3 months correlation between British and Turning is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Turning Point Brands in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Turning Point Brands 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 Turning Point. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Turning Point Brands has no effect on the direction of British American i.e., British American and Turning Point go up and down completely randomly.
Pair Corralation between British American and Turning Point
Assuming the 90 days horizon British American is expected to generate 3.28 times less return on investment than Turning Point. But when comparing it to its historical volatility, British American Tobacco is 1.19 times less risky than Turning Point. It trades about 0.2 of its potential returns per unit of risk. Turning Point Brands is currently generating about 0.56 of returns per unit of risk over similar time horizon. If you would invest 4,673 in Turning Point Brands on August 28, 2024 and sell it today you would earn a total of 1,438 from holding Turning Point Brands or generate 30.77% 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. Turning Point Brands
Performance |
| Timeline |
| British American Tobacco |
| Turning Point Brands |
British American and Turning Point Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with British American and Turning Point
The main advantage of trading using opposite British American and Turning Point positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American position performs unexpectedly, Turning Point 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 Turning Point will offset losses from the drop in Turning Point's long position.| British American vs. Imperial Brands PLC | British American vs. RLX Technology | British American vs. British American Tobacco | British American vs. Turning Point Brands |
| Turning Point vs. Universal | Turning Point vs. Imperial Brands PLC | Turning Point vs. British American Tobacco | Turning Point vs. Philip Morris International |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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