Correlation Between Imperial Brands and BP Plc

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

Diversification Opportunities for Imperial Brands and BP Plc

0.59

Correlation Coefficient

Imperial Brands  BP Plc

Very weak diversification

The 3 months correlation between Imperial and BP-B is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Brands PLC and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP 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 BP Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP plc has no effect on the direction of Imperial Brands i.e., Imperial Brands and BP Plc go up and down completely randomly.

Pair Corralation between Imperial Brands and BP Plc

Assuming the 90 days trading horizon Imperial Brands PLC is expected to generate 1.22 times more return on investment than BP Plc. However, Imperial Brands is 1.22 times more volatile than BP plc. It trades about 0.15 of its potential returns per unit of risk. BP plc is currently generating about 0.03 per unit of risk. If you would invest  251,490  in Imperial Brands PLC on December 22, 2024 and sell it today you would earn a total of  21,910  from holding Imperial Brands PLC or generate 8.71% return on investment over 90 days.

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

Imperial Brands PLC  vs.  BP 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 12 (%) 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.

BP plc

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BP plc are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, BP Plc is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Imperial Brands and BP Plc

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

The idea behind Imperial Brands PLC and BP 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 Transaction History module to view history of all your transactions and understand their impact on performance.