Correlation Between British Amer and Truworths International

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

Diversification Opportunities for British Amer and Truworths International

-0.47

Correlation Coefficient

British Amer  Truworths International

Very good diversification

The 3 months correlation between British and Truworths is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Truworths International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Truworths International and British Amer 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 Truworths International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Truworths International has no effect on the direction of British Amer i.e., British Amer and Truworths International go up and down completely randomly.

Pair Corralation between British Amer and Truworths International

Assuming the 90 days trading horizon British American Tobacco is expected to under-perform the Truworths International. But the stock apears to be less risky and, when comparing its historical volatility, British American Tobacco is 1.75 times less risky than Truworths International. The stock trades about -0.01 of its potential returns per unit of risk. The Truworths International is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  953,100  in Truworths International on September 14, 2024 and sell it today you would earn a total of  126,400  from holding Truworths International or generate 13.26% return on investment over 90 days.

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

British American Tobacco  vs.  Truworths International

British American Tobacco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days British American Tobacco has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, British Amer is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Truworths International

Risk-Adjusted Performance

8 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Truworths International are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Truworths International exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with British Amer and Truworths International

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

The idea behind British American Tobacco and Truworths International 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.