Correlation Between Imperial Brands and Endo International

Can any of the company-specific risk be diversified away by investing in both Imperial Brands and Endo International 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 Endo International 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 Endo International PLC, you can compare the effects of market volatilities on Imperial Brands and Endo International 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 Endo International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Imperial Brands and Endo International.

Diversification Opportunities for Imperial Brands and Endo International

0.84

Correlation Coefficient

Imperial Brands  Endo International

Very poor diversification

The 3 months correlation between Imperial and Endo is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Brands PLC and Endo International PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Endo International PLC 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 Endo International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Endo International PLC has no effect on the direction of Imperial Brands i.e., Imperial Brands and Endo International go up and down completely randomly.

Pair Corralation between Imperial Brands and Endo International

Assuming the 90 days trading horizon Imperial Brands is expected to generate 2.36 times less return on investment than Endo International. But when comparing it to its historical volatility, Imperial Brands PLC is 1.21 times less risky than Endo International. It trades about 0.15 of its potential returns per unit of risk. Endo International PLC is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  59,763  in Endo International PLC on December 23, 2024 and sell it today you would earn a total of  12,704  from holding Endo International PLC or generate 21.26% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.83%
Values	Daily Returns

Imperial Brands PLC  vs.  Endo International PLC

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 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Imperial Brands may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Endo International PLC

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Endo International PLC are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Endo International unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Imperial Brands and Endo International

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

The idea behind Imperial Brands PLC and Endo International 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.