Correlation Between British American and Impala Platinum

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

Diversification Opportunities for British American and Impala Platinum

-0.29

Correlation Coefficient

British American  Impala Platinum

Very good diversification

The 3 months correlation between British and Impala is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Impala Platinum Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Impala Platinum Holdings 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 Impala Platinum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Impala Platinum Holdings has no effect on the direction of British American i.e., British American and Impala Platinum go up and down completely randomly.

Pair Corralation between British American and Impala Platinum

Assuming the 90 days trading horizon British American is expected to generate 4.8 times less return on investment than Impala Platinum. But when comparing it to its historical volatility, British American Tobacco is 4.03 times less risky than Impala Platinum. It trades about 0.08 of its potential returns per unit of risk. Impala Platinum Holdings is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  447.00  in Impala Platinum Holdings on September 13, 2024 and sell it today you would earn a total of  99.00  from holding Impala Platinum Holdings or generate 22.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

British American Tobacco  vs.  Impala Platinum Holdings

British American Tobacco

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 6 (%) 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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Impala Platinum Holdings

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Impala Platinum Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady technical indicators, Impala Platinum reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with British American and Impala Platinum

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

The idea behind British American Tobacco and Impala Platinum Holdings 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.