Correlation Between IMPERIAL TOBACCO and CEOTRONICS

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

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

Diversification Opportunities for IMPERIAL TOBACCO and CEOTRONICS

0.63

Correlation Coefficient

IMPERIAL TOBACCO  CEOTRONICS

Poor diversification

The 3 months correlation between IMPERIAL and CEOTRONICS is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding IMPERIAL TOBACCO and CEOTRONICS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEOTRONICS 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 CEOTRONICS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEOTRONICS has no effect on the direction of IMPERIAL TOBACCO i.e., IMPERIAL TOBACCO and CEOTRONICS go up and down completely randomly.

Pair Corralation between IMPERIAL TOBACCO and CEOTRONICS

Assuming the 90 days trading horizon IMPERIAL TOBACCO is expected to generate 0.33 times more return on investment than CEOTRONICS. However, IMPERIAL TOBACCO is 3.01 times less risky than CEOTRONICS. It trades about 0.33 of its potential returns per unit of risk. CEOTRONICS is currently generating about 0.04 per unit of risk. If you would invest  2,495  in IMPERIAL TOBACCO on October 5, 2024 and sell it today you would earn a total of  600.00  from holding IMPERIAL TOBACCO or generate 24.05% 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.  CEOTRONICS

IMPERIAL TOBACCO

Risk-Adjusted Performance

0 of 100

Solid

Over the last 90 days IMPERIAL TOBACCO has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

CEOTRONICS

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days CEOTRONICS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively fragile basic indicators, CEOTRONICS may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with IMPERIAL TOBACCO and CEOTRONICS

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

The idea behind IMPERIAL TOBACCO and CEOTRONICS 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.