Correlation Between IND+COMMBK CHINA and Imperial Brands

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

By analyzing existing cross correlation between INDCOMMBK CHINA ADR20 and Imperial Brands PLC, you can compare the effects of market volatilities on IND+COMMBK CHINA 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 IND+COMMBK CHINA with a short position of Imperial Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of IND+COMMBK CHINA and Imperial Brands.

Diversification Opportunities for IND+COMMBK CHINA and Imperial Brands

0.72

Correlation Coefficient

IND+COMMBK CHINA  Imperial Brands

Poor diversification

The 3 months correlation between IND+COMMBK and Imperial is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding INDCOMMBK CHINA ADR20 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 IND+COMMBK CHINA 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 INDCOMMBK CHINA ADR20 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 IND+COMMBK CHINA i.e., IND+COMMBK CHINA and Imperial Brands go up and down completely randomly.

Pair Corralation between IND+COMMBK CHINA and Imperial Brands

Assuming the 90 days trading horizon IND+COMMBK CHINA is expected to generate 1.55 times less return on investment than Imperial Brands. In addition to that, IND+COMMBK CHINA is 1.36 times more volatile than Imperial Brands PLC. It trades about 0.07 of its total potential returns per unit of risk. Imperial Brands PLC is currently generating about 0.15 per unit of volatility. If you would invest  3,015  in Imperial Brands PLC on December 30, 2024 and sell it today you would earn a total of  350.00  from holding Imperial Brands PLC or generate 11.61% return on investment over 90 days.

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

INDCOMMBK CHINA ADR20  vs.  Imperial Brands PLC

INDCOMMBK CHINA ADR20

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in INDCOMMBK CHINA ADR20 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward-looking signals, IND+COMMBK CHINA may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Imperial Brands PLC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Brands PLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental drivers, Imperial Brands may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IND+COMMBK CHINA and Imperial Brands

The main advantage of trading using opposite IND+COMMBK CHINA and Imperial Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IND+COMMBK CHINA 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 INDCOMMBK CHINA ADR20 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.