Correlation Between China Resources and Imperial Brands

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

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

Diversification Opportunities for China Resources and Imperial Brands

-0.56

Correlation Coefficient

China Resources  Imperial Brands

Excellent diversification

The 3 months correlation between China and Imperial is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding China Resources Beer 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 China Resources 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 China Resources Beer 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 China Resources i.e., China Resources and Imperial Brands go up and down completely randomly.

Pair Corralation between China Resources and Imperial Brands

Assuming the 90 days horizon China Resources Beer is expected to under-perform the Imperial Brands. In addition to that, China Resources is 2.59 times more volatile than Imperial Brands PLC. It trades about -0.01 of its total potential returns per unit of risk. Imperial Brands PLC is currently generating about 0.07 per unit of volatility. If you would invest  2,119  in Imperial Brands PLC on September 23, 2024 and sell it today you would earn a total of  986.00  from holding Imperial Brands PLC or generate 46.53% return on investment over 90 days.

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

China Resources Beer  vs.  Imperial Brands PLC

China Resources Beer

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China Resources Beer are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, China Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Imperial Brands PLC

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Brands PLC are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental drivers, Imperial Brands unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Resources and Imperial Brands

The main advantage of trading using opposite China Resources and Imperial Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Resources 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 China Resources Beer 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.

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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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.