Correlation Between IMPERIAL TOBACCO and MACOM Technology

Can any of the company-specific risk be diversified away by investing in both IMPERIAL TOBACCO and MACOM Technology 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 TOBACCO and MACOM Technology into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between IMPERIAL TOBACCO and MACOM Technology Solutions, you can compare the effects of market volatilities on IMPERIAL TOBACCO and MACOM Technology 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 TOBACCO with a short position of MACOM Technology. Check out your portfolio center. Please also check ongoing floating volatility patterns of IMPERIAL TOBACCO and MACOM Technology.

Diversification Opportunities for IMPERIAL TOBACCO and MACOM Technology

0.84

Correlation Coefficient

IMPERIAL TOBACCO  MACOM Technology

Very poor diversification

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

Pair Corralation between IMPERIAL TOBACCO and MACOM Technology

Assuming the 90 days trading horizon IMPERIAL TOBACCO is expected to generate 2.04 times less return on investment than MACOM Technology. But when comparing it to its historical volatility, IMPERIAL TOBACCO is 2.92 times less risky than MACOM Technology. It trades about 0.23 of its potential returns per unit of risk. MACOM Technology Solutions is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  10,800  in MACOM Technology Solutions on October 26, 2024 and sell it today you would earn a total of  3,100  from holding MACOM Technology Solutions or generate 28.7% return on investment over 90 days.

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

IMPERIAL TOBACCO   vs.  MACOM Technology Solutions

IMPERIAL TOBACCO

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in IMPERIAL TOBACCO are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental drivers, IMPERIAL TOBACCO unveiled solid returns over the last few months and may actually be approaching a breakup point.

MACOM Technology Sol

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in MACOM Technology Solutions are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, MACOM Technology reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IMPERIAL TOBACCO and MACOM Technology

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

The idea behind IMPERIAL TOBACCO and MACOM Technology Solutions 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.