Correlation Between IMPERIAL TOBACCO and Sibanye Stillwater

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

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

Diversification Opportunities for IMPERIAL TOBACCO and Sibanye Stillwater

-0.43

Correlation Coefficient

IMPERIAL TOBACCO  Sibanye Stillwater

Very good diversification

The 3 months correlation between IMPERIAL and Sibanye is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding IMPERIAL TOBACCO and Sibanye Stillwater Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sibanye Stillwater 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 Sibanye Stillwater. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sibanye Stillwater has no effect on the direction of IMPERIAL TOBACCO i.e., IMPERIAL TOBACCO and Sibanye Stillwater go up and down completely randomly.

Pair Corralation between IMPERIAL TOBACCO and Sibanye Stillwater

Assuming the 90 days trading horizon IMPERIAL TOBACCO is expected to generate 0.25 times more return on investment than Sibanye Stillwater. However, IMPERIAL TOBACCO is 3.93 times less risky than Sibanye Stillwater. It trades about 0.23 of its potential returns per unit of risk. Sibanye Stillwater Limited is currently generating about -0.13 per unit of risk. If you would invest  2,724  in IMPERIAL TOBACCO on October 26, 2024 and sell it today you would earn a total of  386.00  from holding IMPERIAL TOBACCO or generate 14.17% 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.  Sibanye Stillwater Limited

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.

Sibanye Stillwater

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sibanye Stillwater Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with IMPERIAL TOBACCO and Sibanye Stillwater

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

The idea behind IMPERIAL TOBACCO and Sibanye Stillwater Limited 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.