Correlation Between Anheuser Busch and British Amer

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

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

Diversification Opportunities for Anheuser Busch and British Amer

0.42

Correlation Coefficient

Anheuser Busch  British Amer

Very weak diversification

The 3 months correlation between Anheuser and British is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Anheuser Busch Inbev 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 Anheuser Busch 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 Anheuser Busch Inbev are associated (or correlated) with British Amer. 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 Anheuser Busch i.e., Anheuser Busch and British Amer go up and down completely randomly.

Pair Corralation between Anheuser Busch and British Amer

Considering the 90-day investment horizon Anheuser Busch Inbev is expected to generate 1.11 times more return on investment than British Amer. However, Anheuser Busch is 1.11 times more volatile than British American Tobacco. It trades about 0.03 of its potential returns per unit of risk. British American Tobacco is currently generating about -0.02 per unit of risk. If you would invest  5,401  in Anheuser Busch Inbev on February 12, 2024 and sell it today you would earn a total of  1,020  from holding Anheuser Busch Inbev or generate 18.89% return on investment over 90 days.

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

Anheuser Busch Inbev  vs.  British American Tobacco

Anheuser Busch Inbev

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Anheuser Busch Inbev are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Anheuser Busch is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

British American Tobacco

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in British American Tobacco are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, British Amer is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Anheuser Busch and British Amer

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

The idea behind Anheuser Busch Inbev 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.