Correlation Between Imperial Brands and SBM Offshore

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

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

Diversification Opportunities for Imperial Brands and SBM Offshore

0.04

Correlation Coefficient

Imperial Brands  SBM Offshore

Significant diversification

The 3 months correlation between Imperial and SBM is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Brands PLC and SBM Offshore NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBM Offshore NV and Imperial Brands 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 Imperial Brands PLC are associated (or correlated) with SBM Offshore. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBM Offshore NV has no effect on the direction of Imperial Brands i.e., Imperial Brands and SBM Offshore go up and down completely randomly.

Pair Corralation between Imperial Brands and SBM Offshore

Assuming the 90 days trading horizon Imperial Brands is expected to generate 1.05 times less return on investment than SBM Offshore. But when comparing it to its historical volatility, Imperial Brands PLC is 1.6 times less risky than SBM Offshore. It trades about 0.08 of its potential returns per unit of risk. SBM Offshore NV is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,243  in SBM Offshore NV on October 25, 2024 and sell it today you would earn a total of  568.00  from holding SBM Offshore NV or generate 45.7% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Imperial Brands PLC  vs.  SBM Offshore NV

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 rather uncertain technical and fundamental indicators, Imperial Brands exhibited solid returns over the last few months and may actually be approaching a breakup point.

SBM Offshore NV

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SBM Offshore NV are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite weak essential indicators, SBM Offshore may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Imperial Brands and SBM Offshore

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

The idea behind Imperial Brands PLC and SBM Offshore NV 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.