Correlation Between River and British American
Can any of the company-specific risk be diversified away by investing in both River 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 River and British American into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between River and Mercantile and British American Tobacco, you can compare the effects of market volatilities on River 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 River with a short position of British American. Check out your portfolio center. Please also check ongoing floating volatility patterns of River and British American.
Diversification Opportunities for River and British American
-0.31 | Correlation Coefficient |
Very good diversification
The 3 months correlation between River and British is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding River and Mercantile 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 River 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 River and Mercantile 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 River i.e., River and British American go up and down completely randomly.
Pair Corralation between River and British American
Assuming the 90 days trading horizon River and Mercantile is expected to generate 0.08 times more return on investment than British American. However, River and Mercantile is 12.29 times less risky than British American. It trades about 0.0 of its potential returns per unit of risk. British American Tobacco is currently generating about -0.07 per unit of risk. If you would invest 17,550 in River and Mercantile on November 27, 2024 and sell it today you would earn a total of 0.00 from holding River and Mercantile or generate 0.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
River and Mercantile vs. British American Tobacco
Performance |
| Timeline |
| River and Mercantile |
| British American Tobacco |
River and British American Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with River and British American
The main advantage of trading using opposite River and British American positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if River 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.| River vs. Associated British Foods | River vs. Premier Foods PLC | River vs. AfriTin Mining | River vs. Resolute Mining Limited |
| British American vs. UNIQA Insurance Group | British American vs. Austevoll Seafood ASA | British American vs. Berner Kantonalbank AG | British American vs. MoneysupermarketCom Group PLC |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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