Correlation Between British Amer and Diamond Offshore

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

Diversification Opportunities for British Amer and Diamond Offshore

  Correlation Coefficient

Excellent diversification

The 3 months correlation between British and Diamond is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding British American Tobacco and Diamond Offshore Drilling in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diamond Offshore Drilling 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 Diamond Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diamond Offshore Drilling has no effect on the direction of British Amer i.e., British Amer and Diamond Offshore go up and down completely randomly.

Pair Corralation between British Amer and Diamond Offshore

Considering the 90-day investment horizon British Amer is expected to generate 8.77 times less return on investment than Diamond Offshore. But when comparing it to its historical volatility, British American Tobacco is 2.95 times less risky than Diamond Offshore. It trades about 0.02 of its potential returns per unit of risk. Diamond Offshore Drilling is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  750.00  in Diamond Offshore Drilling on December 21, 2022 and sell it today you would earn a total of  270.00  from holding Diamond Offshore Drilling or generate 36.0% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
ValuesDaily Returns

British American Tobacco  vs.  Diamond Offshore Drilling

 Performance (%) 
British American Tobacco 

British Performance

0 of 100

Over the last 90 days British American Tobacco has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.
Diamond Offshore Drilling 

Diamond Performance

3 of 100

Compared to the overall equity markets, risk-adjusted returns on investments in Diamond Offshore Drilling are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Diamond Offshore may actually be approaching a critical reversion point that can send shares even higher in April 2023.

British Amer and Diamond Offshore Volatility Contrast

   Predicted Return Density   

Pair Trading with British Amer and Diamond Offshore

The main advantage of trading using opposite British Amer and Diamond Offshore positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if British Amer position performs unexpectedly, Diamond Offshore 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 Diamond Offshore will offset losses from the drop in Diamond Offshore's long position.
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The idea behind British American Tobacco and Diamond Offshore Drilling 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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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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.

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