Correlation Between IMPERIAL TOBACCO and CosmoSteel Holdings

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

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

Diversification Opportunities for IMPERIAL TOBACCO and CosmoSteel Holdings

0.39

Correlation Coefficient

IMPERIAL TOBACCO  CosmoSteel Holdings

Weak diversification

The 3 months correlation between IMPERIAL and CosmoSteel is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding IMPERIAL TOBACCO and CosmoSteel Holdings Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CosmoSteel Holdings 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 CosmoSteel Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CosmoSteel Holdings has no effect on the direction of IMPERIAL TOBACCO i.e., IMPERIAL TOBACCO and CosmoSteel Holdings go up and down completely randomly.

Pair Corralation between IMPERIAL TOBACCO and CosmoSteel Holdings

Assuming the 90 days trading horizon IMPERIAL TOBACCO is expected to generate 0.42 times more return on investment than CosmoSteel Holdings. However, IMPERIAL TOBACCO is 2.37 times less risky than CosmoSteel Holdings. It trades about 0.08 of its potential returns per unit of risk. CosmoSteel Holdings Limited is currently generating about 0.0 per unit of risk. If you would invest  2,078  in IMPERIAL TOBACCO on September 26, 2024 and sell it today you would earn a total of  1,018  from holding IMPERIAL TOBACCO or generate 48.99% return on investment over 90 days.

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

IMPERIAL TOBACCO   vs.  CosmoSteel Holdings Limited

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.

CosmoSteel Holdings

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CosmoSteel Holdings Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CosmoSteel Holdings may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IMPERIAL TOBACCO and CosmoSteel Holdings

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

The idea behind IMPERIAL TOBACCO and CosmoSteel Holdings 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.