Correlation Between First and British American
Can any of the company-specific risk be diversified away by investing in both First and British American 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 First and British American into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between First Class Metals and British American Tobacco, you can compare the effects of market volatilities on First 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 First with a short position of British American. Check out your portfolio center. Please also check ongoing floating volatility patterns of First and British American.
Diversification Opportunities for First and British American
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between First and British is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding First Class Metals 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 First 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 First Class Metals 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 First i.e., First and British American go up and down completely randomly.
Pair Corralation between First and British American
Assuming the 90 days trading horizon First Class Metals is expected to under-perform the British American. In addition to that, First is 3.49 times more volatile than British American Tobacco. It trades about -0.02 of its total potential returns per unit of risk. British American Tobacco is currently generating about 0.11 per unit of volatility. If you would invest 2,654 in British American Tobacco on October 14, 2024 and sell it today you would earn a total of 963.00 from holding British American Tobacco or generate 36.28% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 98.95% |
| Values | Daily Returns |
First Class Metals vs. British American Tobacco
Performance |
| Timeline |
| First Class Metals |
| British American Tobacco |
First and British American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with First and British American
The main advantage of trading using opposite First and British American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First 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.| First vs. Spirent Communications plc | First vs. Pets at Home | First vs. Cairn Homes PLC | First vs. Ecclesiastical Insurance Office |
| British American vs. Zinc Media Group | British American vs. AcadeMedia AB | British American vs. Intermediate Capital Group | British American vs. First Class Metals |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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