Correlation Between IMPERIAL TOBACCO and Heineken Holding

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

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

Diversification Opportunities for IMPERIAL TOBACCO and Heineken Holding

0.71

Correlation Coefficient

IMPERIAL TOBACCO  Heineken Holding

Poor diversification

The 3 months correlation between IMPERIAL and Heineken is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding IMPERIAL TOBACCO and Heineken Holding NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heineken Holding 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 Heineken Holding. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heineken Holding has no effect on the direction of IMPERIAL TOBACCO i.e., IMPERIAL TOBACCO and Heineken Holding go up and down completely randomly.

Pair Corralation between IMPERIAL TOBACCO and Heineken Holding

Assuming the 90 days trading horizon IMPERIAL TOBACCO is expected to generate 2.71 times less return on investment than Heineken Holding. But when comparing it to its historical volatility, IMPERIAL TOBACCO is 2.33 times less risky than Heineken Holding. It trades about 0.13 of its potential returns per unit of risk. Heineken Holding NV is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  5,730  in Heineken Holding NV on December 23, 2024 and sell it today you would earn a total of  1,070  from holding Heineken Holding NV or generate 18.67% return on investment over 90 days.

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

IMPERIAL TOBACCO   vs.  Heineken Holding NV

IMPERIAL TOBACCO

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in IMPERIAL TOBACCO are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental drivers, IMPERIAL TOBACCO may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Heineken Holding

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Heineken Holding NV are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Heineken Holding reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IMPERIAL TOBACCO and Heineken Holding

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

The idea behind IMPERIAL TOBACCO and Heineken Holding NV 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.