Correlation Between London Security and British American

Can any of the company-specific risk be diversified away by investing in both London Security and British American 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 London Security and British American into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between London Security Plc and British American Tobacco, you can compare the effects of market volatilities on London Security and British American 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 London Security with a short position of British American. Check out your portfolio center. Please also check ongoing floating volatility patterns of London Security and British American.

Diversification Opportunities for London Security and British American

-0.72

Correlation Coefficient

London Security  British American

Pay attention - limited upside

The 3 months correlation between London and British is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding London Security Plc and British American Tobacco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on British American Tobacco and London Security 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 London Security Plc are associated (or correlated) with British American. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of British American Tobacco has no effect on the direction of London Security i.e., London Security and British American go up and down completely randomly.

Pair Corralation between London Security and British American

Assuming the 90 days trading horizon London Security Plc is expected to under-perform the British American. In addition to that, London Security is 1.23 times more volatile than British American Tobacco. It trades about -0.09 of its total potential returns per unit of risk. British American Tobacco is currently generating about 0.0 per unit of volatility. If you would invest  3,637  in British American Tobacco on September 23, 2024 and sell it today you would lose (27.00) from holding British American Tobacco or give up 0.74% of portfolio value over 90 days.

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

London Security Plc  vs.  British American Tobacco

London Security Plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days London Security Plc 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.

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 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.

Pair Trading with London Security and British American

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

The idea behind London Security Plc and British American Tobacco 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.