Correlation Between IMPERIAL TOBACCO and Kaufman Broad

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

By analyzing existing cross correlation between IMPERIAL TOBACCO and Kaufman Broad SA, you can compare the effects of market volatilities on IMPERIAL TOBACCO and Kaufman Broad 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 Kaufman Broad. Check out your portfolio center. Please also check ongoing floating volatility patterns of IMPERIAL TOBACCO and Kaufman Broad.

Diversification Opportunities for IMPERIAL TOBACCO and Kaufman Broad

-0.57

Correlation Coefficient

IMPERIAL TOBACCO  Kaufman Broad

Excellent diversification

The 3 months correlation between IMPERIAL and Kaufman is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding IMPERIAL TOBACCO and Kaufman Broad SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaufman Broad SA 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 Kaufman Broad. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kaufman Broad SA has no effect on the direction of IMPERIAL TOBACCO i.e., IMPERIAL TOBACCO and Kaufman Broad go up and down completely randomly.

Pair Corralation between IMPERIAL TOBACCO and Kaufman Broad

Assuming the 90 days trading horizon IMPERIAL TOBACCO is expected to generate 0.55 times more return on investment than Kaufman Broad. However, IMPERIAL TOBACCO is 1.82 times less risky than Kaufman Broad. It trades about 0.09 of its potential returns per unit of risk. Kaufman Broad SA is currently generating about 0.03 per unit of risk. If you would invest  3,051  in IMPERIAL TOBACCO on September 27, 2024 and sell it today you would earn a total of  45.00  from holding IMPERIAL TOBACCO or generate 1.47% return on investment over 90 days.

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

IMPERIAL TOBACCO   vs.  Kaufman Broad SA

IMPERIAL TOBACCO

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in IMPERIAL TOBACCO are ranked lower than 22 (%) 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.

Kaufman Broad SA

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Kaufman Broad SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Kaufman Broad is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IMPERIAL TOBACCO and Kaufman Broad

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

The idea behind IMPERIAL TOBACCO and Kaufman Broad SA 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.