Correlation Between IMPERIAL TOBACCO and ELMOS SEMICONDUCTOR

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

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

Diversification Opportunities for IMPERIAL TOBACCO and ELMOS SEMICONDUCTOR

0.03

Correlation Coefficient

IMPERIAL TOBACCO  ELMOS SEMICONDUCTOR

Significant diversification

The 3 months correlation between IMPERIAL and ELMOS is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding IMPERIAL TOBACCO and ELMOS SEMICONDUCTOR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ELMOS SEMICONDUCTOR 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 ELMOS SEMICONDUCTOR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ELMOS SEMICONDUCTOR has no effect on the direction of IMPERIAL TOBACCO i.e., IMPERIAL TOBACCO and ELMOS SEMICONDUCTOR go up and down completely randomly.

Pair Corralation between IMPERIAL TOBACCO and ELMOS SEMICONDUCTOR

Assuming the 90 days trading horizon IMPERIAL TOBACCO is expected to generate 0.35 times more return on investment than ELMOS SEMICONDUCTOR. However, IMPERIAL TOBACCO is 2.84 times less risky than ELMOS SEMICONDUCTOR. It trades about 0.26 of its potential returns per unit of risk. ELMOS SEMICONDUCTOR is currently generating about 0.05 per unit of risk. If you would invest  2,559  in IMPERIAL TOBACCO on September 24, 2024 and sell it today you would earn a total of  522.00  from holding IMPERIAL TOBACCO or generate 20.4% return on investment over 90 days.

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

IMPERIAL TOBACCO   vs.  ELMOS SEMICONDUCTOR

IMPERIAL TOBACCO

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in IMPERIAL TOBACCO are ranked lower than 20 (%) 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.

ELMOS SEMICONDUCTOR

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ELMOS SEMICONDUCTOR are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, ELMOS SEMICONDUCTOR may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IMPERIAL TOBACCO and ELMOS SEMICONDUCTOR

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

The idea behind IMPERIAL TOBACCO and ELMOS SEMICONDUCTOR 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.

Check out your portfolio center.

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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.