Correlation Between Imperial Brands and TAAT Global

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

Diversification Opportunities for Imperial Brands and TAAT Global

-0.56

Correlation Coefficient

Imperial Brands  TAAT Global

Excellent diversification

The 3 months correlation between Imperial and TAAT is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Brands PLC and TAAT Global Alternatives in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TAAT Global Alternatives 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 TAAT Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TAAT Global Alternatives has no effect on the direction of Imperial Brands i.e., Imperial Brands and TAAT Global go up and down completely randomly.

Pair Corralation between Imperial Brands and TAAT Global

Assuming the 90 days horizon Imperial Brands is expected to generate 5.42 times less return on investment than TAAT Global. But when comparing it to its historical volatility, Imperial Brands PLC is 9.67 times less risky than TAAT Global. It trades about 0.21 of its potential returns per unit of risk. TAAT Global Alternatives is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  13.00  in TAAT Global Alternatives on September 22, 2024 and sell it today you would earn a total of  2.00  from holding TAAT Global Alternatives or generate 15.38% return on investment over 90 days.

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

Imperial Brands PLC  vs.  TAAT Global Alternatives

Imperial Brands PLC

Risk-Adjusted Performance

12 of 100

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 fairly fragile fundamental drivers, Imperial Brands may actually be approaching a critical reversion point that can send shares even higher in January 2025.

TAAT Global Alternatives

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in TAAT Global Alternatives are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, TAAT Global reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Imperial Brands and TAAT Global

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

The idea behind Imperial Brands PLC and TAAT Global Alternatives 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.