Correlation Between IMPERIAL TOBACCO and Boeing

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

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

Diversification Opportunities for IMPERIAL TOBACCO and Boeing

0.68

Correlation Coefficient

IMPERIAL TOBACCO  Boeing

Poor diversification

The 3 months correlation between IMPERIAL and Boeing is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding IMPERIAL TOBACCO and The Boeing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Boeing 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 Boeing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Boeing has no effect on the direction of IMPERIAL TOBACCO i.e., IMPERIAL TOBACCO and Boeing go up and down completely randomly.

Pair Corralation between IMPERIAL TOBACCO and Boeing

Assuming the 90 days trading horizon IMPERIAL TOBACCO is expected to generate 0.52 times more return on investment than Boeing. However, IMPERIAL TOBACCO is 1.93 times less risky than Boeing. It trades about 0.14 of its potential returns per unit of risk. The Boeing is currently generating about -0.03 per unit of risk. If you would invest  2,063  in IMPERIAL TOBACCO on September 27, 2024 and sell it today you would earn a total of  1,033  from holding IMPERIAL TOBACCO or generate 50.07% 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.  The Boeing

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.

Boeing

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in The Boeing are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Boeing reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IMPERIAL TOBACCO and Boeing

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

The idea behind IMPERIAL TOBACCO and The Boeing 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.