Correlation Between British American and CATLIN GROUP

Can any of the company-specific risk be diversified away by investing in both British American and CATLIN GROUP 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 CATLIN GROUP 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 CATLIN GROUP , you can compare the effects of market volatilities on British American and CATLIN GROUP 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 CATLIN GROUP. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and CATLIN GROUP.

Diversification Opportunities for British American and CATLIN GROUP

0.35

Correlation Coefficient

British American  CATLIN GROUP

Weak diversification

The 3 months correlation between British and CATLIN is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and CATLIN GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CATLIN GROUP 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 CATLIN GROUP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CATLIN GROUP has no effect on the direction of British American i.e., British American and CATLIN GROUP go up and down completely randomly.

Pair Corralation between British American and CATLIN GROUP

Assuming the 90 days trading horizon British American Tobacco is expected to generate 1.11 times more return on investment than CATLIN GROUP. However, British American is 1.11 times more volatile than CATLIN GROUP . It trades about 0.05 of its potential returns per unit of risk. CATLIN GROUP is currently generating about -0.11 per unit of risk. If you would invest  3,679  in British American Tobacco on September 3, 2024 and sell it today you would earn a total of  118.00  from holding British American Tobacco or generate 3.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

British American Tobacco  vs.  CATLIN GROUP

British American Tobacco

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, British American is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

CATLIN GROUP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CATLIN GROUP has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with British American and CATLIN GROUP

The main advantage of trading using opposite British American and CATLIN GROUP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American position performs unexpectedly, CATLIN GROUP 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 CATLIN GROUP will offset losses from the drop in CATLIN GROUP's long position.

The idea behind British American Tobacco and CATLIN GROUP 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.

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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.