Correlation Between Itron and British American
Can any of the company-specific risk be diversified away by investing in both Itron 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 Itron and British American into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Itron Inc and British American Tobacco, you can compare the effects of market volatilities on Itron 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 Itron with a short position of British American. Check out your portfolio center. Please also check ongoing floating volatility patterns of Itron and British American.
Diversification Opportunities for Itron and British American
-0.21 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Itron and British is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Itron Inc 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 Itron 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 Itron Inc 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 Itron i.e., Itron and British American go up and down completely randomly.
Pair Corralation between Itron and British American
Given the investment horizon of 90 days Itron Inc is expected to generate 0.73 times more return on investment than British American. However, Itron Inc is 1.37 times less risky than British American. It trades about 0.14 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 10,681 in Itron Inc on August 31, 2024 and sell it today you would earn a total of 1,248 from holding Itron Inc or generate 11.68% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Itron Inc vs. British American Tobacco
Performance |
| Timeline |
| Itron Inc |
| British American Tobacco |
Itron and British American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Itron and British American
The main advantage of trading using opposite Itron and British American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Itron 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 Itron Inc 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.| British American vs. Imperial Brands PLC | British American vs. Turning Point Brands | British American vs. Universal | British American vs. Japan Tobacco ADR |
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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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