Correlation Between British American and Bath Body
Can any of the company-specific risk be diversified away by investing in both British American and Bath Body 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 Bath Body 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 Bath Body Works, you can compare the effects of market volatilities on British American and Bath Body 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 Bath Body. Check out your portfolio center. Please also check ongoing floating volatility patterns of British American and Bath Body.
Diversification Opportunities for British American and Bath Body
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between British and Bath is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Bath Body Works in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bath Body Works 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 Bath Body. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bath Body Works has no effect on the direction of British American i.e., British American and Bath Body go up and down completely randomly.
Pair Corralation between British American and Bath Body
Assuming the 90 days trading horizon British American is expected to generate 6.14 times less return on investment than Bath Body. But when comparing it to its historical volatility, British American Tobacco is 2.01 times less risky than Bath Body. It trades about 0.07 of its potential returns per unit of risk. Bath Body Works is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 4,145 in Bath Body Works on September 25, 2024 and sell it today you would earn a total of 1,873 from holding Bath Body Works or generate 45.19% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Very Strong |
Accuracy | 100.0% |
Values | Daily Returns |
British American Tobacco vs. Bath Body Works
Performance |
Timeline |
British American Tobacco |
Bath Body Works |
British American and Bath Body Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with British American and Bath Body
The main advantage of trading using opposite British American and Bath Body positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British American position performs unexpectedly, Bath Body 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 Bath Body will offset losses from the drop in Bath Body's long position.British American vs. Altria Group | British American vs. Tesla Inc | British American vs. Costco Wholesale | British American vs. salesforce inc |
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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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