Correlation Between IMPERIAL TOBACCO and BORR DRILLING

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

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

Diversification Opportunities for IMPERIAL TOBACCO and BORR DRILLING

-0.69

Correlation Coefficient

IMPERIAL TOBACCO  BORR DRILLING

Excellent diversification

The 3 months correlation between IMPERIAL and BORR is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding IMPERIAL TOBACCO and BORR DRILLING NEW in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BORR DRILLING NEW 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 BORR DRILLING. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BORR DRILLING NEW has no effect on the direction of IMPERIAL TOBACCO i.e., IMPERIAL TOBACCO and BORR DRILLING go up and down completely randomly.

Pair Corralation between IMPERIAL TOBACCO and BORR DRILLING

Assuming the 90 days trading horizon IMPERIAL TOBACCO is expected to generate 0.13 times more return on investment than BORR DRILLING. However, IMPERIAL TOBACCO is 7.51 times less risky than BORR DRILLING. It trades about -0.07 of its potential returns per unit of risk. BORR DRILLING NEW is currently generating about -0.06 per unit of risk. If you would invest  3,096  in IMPERIAL TOBACCO on October 25, 2024 and sell it today you would lose (25.00) from holding IMPERIAL TOBACCO or give up 0.81% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	94.44%
Values	Daily Returns

IMPERIAL TOBACCO   vs.  BORR DRILLING NEW

IMPERIAL TOBACCO

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in IMPERIAL TOBACCO are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental drivers, IMPERIAL TOBACCO unveiled solid returns over the last few months and may actually be approaching a breakup point.

BORR DRILLING NEW

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BORR DRILLING NEW has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile 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 BORR DRILLING

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

The idea behind IMPERIAL TOBACCO and BORR DRILLING NEW 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.