Correlation Between Imperial Brands and 1606 Corp

Can any of the company-specific risk be diversified away by investing in both Imperial Brands and 1606 Corp 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 1606 Corp 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 1606 Corp, you can compare the effects of market volatilities on Imperial Brands and 1606 Corp 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 1606 Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Imperial Brands and 1606 Corp.

Diversification Opportunities for Imperial Brands and 1606 Corp

-0.46

Correlation Coefficient

Imperial Brands  1606 Corp

Very good diversification

The 3 months correlation between Imperial and 1606 is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Brands PLC and 1606 Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 1606 Corp 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 1606 Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 1606 Corp has no effect on the direction of Imperial Brands i.e., Imperial Brands and 1606 Corp go up and down completely randomly.

Pair Corralation between Imperial Brands and 1606 Corp

Assuming the 90 days horizon Imperial Brands is expected to generate 3.93 times less return on investment than 1606 Corp. But when comparing it to its historical volatility, Imperial Brands PLC is 5.79 times less risky than 1606 Corp. It trades about 0.07 of its potential returns per unit of risk. 1606 Corp is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3.30  in 1606 Corp on September 12, 2024 and sell it today you would lose (2.00) from holding 1606 Corp or give up 60.61% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.19%
Values	Daily Returns

Imperial Brands PLC  vs.  1606 Corp

Imperial Brands PLC

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Imperial Brands PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly weak fundamental drivers, Imperial Brands reported solid returns over the last few months and may actually be approaching a breakup point.

1606 Corp

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days 1606 Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, 1606 Corp is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Imperial Brands and 1606 Corp

The main advantage of trading using opposite Imperial Brands and 1606 Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Imperial Brands position performs unexpectedly, 1606 Corp 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 1606 Corp will offset losses from the drop in 1606 Corp's long position.

The idea behind Imperial Brands PLC and 1606 Corp 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.