Correlation Between BJs Wholesale and IMPERIAL TOBACCO

Can any of the company-specific risk be diversified away by investing in both BJs Wholesale and IMPERIAL TOBACCO 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 BJs Wholesale and IMPERIAL TOBACCO into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BJs Wholesale Club and IMPERIAL TOBACCO , you can compare the effects of market volatilities on BJs Wholesale and IMPERIAL TOBACCO 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 BJs Wholesale with a short position of IMPERIAL TOBACCO. Check out your portfolio center. Please also check ongoing floating volatility patterns of BJs Wholesale and IMPERIAL TOBACCO.

Diversification Opportunities for BJs Wholesale and IMPERIAL TOBACCO

0.93

Correlation Coefficient

BJs Wholesale  IMPERIAL TOBACCO

Almost no diversification

The 3 months correlation between BJs and IMPERIAL is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding BJs Wholesale Club and IMPERIAL TOBACCO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IMPERIAL TOBACCO and BJs Wholesale 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 BJs Wholesale Club are associated (or correlated) with IMPERIAL TOBACCO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IMPERIAL TOBACCO has no effect on the direction of BJs Wholesale i.e., BJs Wholesale and IMPERIAL TOBACCO go up and down completely randomly.

Pair Corralation between BJs Wholesale and IMPERIAL TOBACCO

Assuming the 90 days horizon BJs Wholesale is expected to generate 2.0 times less return on investment than IMPERIAL TOBACCO. In addition to that, BJs Wholesale is 1.47 times more volatile than IMPERIAL TOBACCO . It trades about 0.03 of its total potential returns per unit of risk. IMPERIAL TOBACCO is currently generating about 0.1 per unit of volatility. If you would invest  1,949  in IMPERIAL TOBACCO on October 5, 2024 and sell it today you would earn a total of  1,166  from holding IMPERIAL TOBACCO or generate 59.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.78%
Values	Daily Returns

BJs Wholesale Club  vs.  IMPERIAL TOBACCO

BJs Wholesale Club

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days BJs Wholesale Club has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, BJs Wholesale may actually be approaching a critical reversion point that can send shares even higher in February 2025.

IMPERIAL TOBACCO

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in IMPERIAL TOBACCO are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental drivers, IMPERIAL TOBACCO unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BJs Wholesale and IMPERIAL TOBACCO

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

The idea behind BJs Wholesale Club and IMPERIAL 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.