Correlation Between Alfa Financial and Imperial Brands

Can any of the company-specific risk be diversified away by investing in both Alfa Financial 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 Alfa Financial and Imperial Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Alfa Financial Software and Imperial Brands PLC, you can compare the effects of market volatilities on Alfa Financial 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 Alfa Financial with a short position of Imperial Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alfa Financial and Imperial Brands.

Diversification Opportunities for Alfa Financial and Imperial Brands

0.76

Correlation Coefficient

Alfa Financial  Imperial Brands

Poor diversification

The 3 months correlation between Alfa and Imperial is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Alfa Financial Software 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 Alfa Financial 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 Alfa Financial Software 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 Alfa Financial i.e., Alfa Financial and Imperial Brands go up and down completely randomly.

Pair Corralation between Alfa Financial and Imperial Brands

Assuming the 90 days trading horizon Alfa Financial is expected to generate 2.43 times less return on investment than Imperial Brands. In addition to that, Alfa Financial is 1.59 times more volatile than Imperial Brands PLC. It trades about 0.06 of its total potential returns per unit of risk. Imperial Brands PLC is currently generating about 0.23 per unit of volatility. If you would invest  2,606  in Imperial Brands PLC on September 15, 2024 and sell it today you would earn a total of  535.00  from holding Imperial Brands PLC or generate 20.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.48%
Values	Daily Returns

Alfa Financial Software  vs.  Imperial Brands PLC

Alfa Financial Software

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Alfa Financial Software are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Alfa Financial may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Imperial Brands PLC

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Brands PLC are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Imperial Brands reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Alfa Financial and Imperial Brands

The main advantage of trading using opposite Alfa Financial and Imperial Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Alfa Financial 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 Alfa Financial Software 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.