Correlation Between Imperial Brands and Pressure Technologies

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

Diversification Opportunities for Imperial Brands and Pressure Technologies

0.7

Correlation Coefficient

Imperial Brands  Pressure Technologies

Poor diversification

The 3 months correlation between Imperial and Pressure is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Brands PLC and Pressure Technologies Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pressure Technologies 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 Pressure Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pressure Technologies Plc has no effect on the direction of Imperial Brands i.e., Imperial Brands and Pressure Technologies go up and down completely randomly.

Pair Corralation between Imperial Brands and Pressure Technologies

Assuming the 90 days trading horizon Imperial Brands PLC is expected to generate 0.58 times more return on investment than Pressure Technologies. However, Imperial Brands PLC is 1.74 times less risky than Pressure Technologies. It trades about 0.25 of its potential returns per unit of risk. Pressure Technologies Plc is currently generating about 0.05 per unit of risk. If you would invest  225,068  in Imperial Brands PLC on October 24, 2024 and sell it today you would earn a total of  35,432  from holding Imperial Brands PLC or generate 15.74% return on investment over 90 days.

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

Imperial Brands PLC  vs.  Pressure Technologies Plc

Imperial Brands PLC

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Brands PLC are ranked lower than 19 (%) 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.

Pressure Technologies Plc

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Pressure Technologies Plc are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Pressure Technologies is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Imperial Brands and Pressure Technologies

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

The idea behind Imperial Brands PLC and Pressure Technologies 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.

Check out your portfolio center.

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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..