Correlation Between British American and COMPUTERSHARE

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

Diversification Opportunities for British American and COMPUTERSHARE

0.91

Correlation Coefficient

British American  COMPUTERSHARE

Almost no diversification

The 3 months correlation between British and COMPUTERSHARE is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and COMPUTERSHARE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on COMPUTERSHARE 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 COMPUTERSHARE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of COMPUTERSHARE has no effect on the direction of British American i.e., British American and COMPUTERSHARE go up and down completely randomly.

Pair Corralation between British American and COMPUTERSHARE

Assuming the 90 days trading horizon British American is expected to generate 3.41 times less return on investment than COMPUTERSHARE. But when comparing it to its historical volatility, British American Tobacco is 1.41 times less risky than COMPUTERSHARE. It trades about 0.02 of its potential returns per unit of risk. COMPUTERSHARE is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,495  in COMPUTERSHARE on September 22, 2024 and sell it today you would earn a total of  505.00  from holding COMPUTERSHARE or generate 33.78% 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.  COMPUTERSHARE

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.

COMPUTERSHARE

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in COMPUTERSHARE are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical indicators, COMPUTERSHARE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with British American and COMPUTERSHARE

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

The idea behind British American Tobacco and COMPUTERSHARE 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..