Correlation Between EAST AFRICAN and BRITISH AMERICAN
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By analyzing existing cross correlation between EAST AFRICAN BREWERIES and BRITISH AMERICAN TOBACCO, you can compare the effects of market volatilities on EAST AFRICAN and BRITISH AMERICAN 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 EAST AFRICAN with a short position of BRITISH AMERICAN. Check out your portfolio center. Please also check ongoing floating volatility patterns of EAST AFRICAN and BRITISH AMERICAN.
Diversification Opportunities for EAST AFRICAN and BRITISH AMERICAN
0.49 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between EAST and BRITISH is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding EAST AFRICAN BREWERIES and BRITISH AMERICAN TOBACCO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRITISH AMERICAN TOBACCO and EAST AFRICAN 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 EAST AFRICAN BREWERIES are associated (or correlated) with BRITISH AMERICAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRITISH AMERICAN TOBACCO has no effect on the direction of EAST AFRICAN i.e., EAST AFRICAN and BRITISH AMERICAN go up and down completely randomly.
Pair Corralation between EAST AFRICAN and BRITISH AMERICAN
Assuming the 90 days trading horizon EAST AFRICAN BREWERIES is expected to generate 3.83 times more return on investment than BRITISH AMERICAN. However, EAST AFRICAN is 3.83 times more volatile than BRITISH AMERICAN TOBACCO. It trades about 0.12 of its potential returns per unit of risk. BRITISH AMERICAN TOBACCO is currently generating about 0.06 per unit of risk. If you would invest 15,600 in EAST AFRICAN BREWERIES on August 28, 2024 and sell it today you would earn a total of 2,400 from holding EAST AFRICAN BREWERIES or generate 15.38% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 97.5% |
| Values | Daily Returns |
EAST AFRICAN BREWERIES vs. BRITISH AMERICAN TOBACCO
Performance |
| Timeline |
| EAST AFRICAN BREWERIES |
| BRITISH AMERICAN TOBACCO |
EAST AFRICAN and BRITISH AMERICAN Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with EAST AFRICAN and BRITISH AMERICAN
The main advantage of trading using opposite EAST AFRICAN and BRITISH AMERICAN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EAST AFRICAN position performs unexpectedly, BRITISH AMERICAN 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 BRITISH AMERICAN will offset losses from the drop in BRITISH AMERICAN's long position.The idea behind EAST AFRICAN BREWERIES and BRITISH AMERICAN TOBACCO 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.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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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