Correlation Between Endo International and Imperial Brands

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Can any of the company-specific risk be diversified away by investing in both Endo International and Imperial Brands 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 Endo International and Imperial Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Endo International PLC and Imperial Brands PLC, you can compare the effects of market volatilities on Endo International and Imperial Brands 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 Endo International with a short position of Imperial Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Endo International and Imperial Brands.

Diversification Opportunities for Endo International and Imperial Brands

-0.74
  Correlation Coefficient

Pay attention - limited upside

The 3 months correlation between Endo and Imperial is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Endo International PLC and Imperial Brands PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Brands PLC and Endo International 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 Endo International PLC are associated (or correlated) with Imperial Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Brands PLC has no effect on the direction of Endo International i.e., Endo International and Imperial Brands go up and down completely randomly.

Pair Corralation between Endo International and Imperial Brands

Assuming the 90 days trading horizon Endo International PLC is expected to under-perform the Imperial Brands. In addition to that, Endo International is 1.05 times more volatile than Imperial Brands PLC. It trades about -0.03 of its total potential returns per unit of risk. Imperial Brands PLC is currently generating about 0.25 per unit of volatility. If you would invest  225,068  in Imperial Brands PLC on October 24, 2024 and sell it today you would earn a total of  35,432  from holding Imperial Brands PLC or generate 15.74% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy98.39%
ValuesDaily Returns

Endo International PLC  vs.  Imperial Brands PLC

 Performance 
       Timeline  
Endo International PLC 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Endo International PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Endo International is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.
Imperial Brands PLC 

Risk-Adjusted Performance

19 of 100

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

Endo International and Imperial Brands Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Endo International and Imperial Brands

The main advantage of trading using opposite Endo International and Imperial Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Endo International position performs unexpectedly, Imperial Brands 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 Imperial Brands will offset losses from the drop in Imperial Brands' long position.
The idea behind Endo International PLC and Imperial Brands PLC 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.
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 the Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.

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