Correlation Between IMPERIAL TOBACCO and FEMALE HEALTH

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

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

Diversification Opportunities for IMPERIAL TOBACCO and FEMALE HEALTH

-0.4

Correlation Coefficient

IMPERIAL TOBACCO  FEMALE HEALTH

Very good diversification

The 3 months correlation between IMPERIAL and FEMALE is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding IMPERIAL TOBACCO and FEMALE HEALTH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FEMALE HEALTH 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 FEMALE HEALTH. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FEMALE HEALTH has no effect on the direction of IMPERIAL TOBACCO i.e., IMPERIAL TOBACCO and FEMALE HEALTH go up and down completely randomly.

Pair Corralation between IMPERIAL TOBACCO and FEMALE HEALTH

Assuming the 90 days trading horizon IMPERIAL TOBACCO is expected to generate 0.3 times more return on investment than FEMALE HEALTH. However, IMPERIAL TOBACCO is 3.3 times less risky than FEMALE HEALTH. It trades about 0.25 of its potential returns per unit of risk. FEMALE HEALTH is currently generating about -0.01 per unit of risk. If you would invest  2,526  in IMPERIAL TOBACCO on September 2, 2024 and sell it today you would earn a total of  553.00  from holding IMPERIAL TOBACCO or generate 21.89% return on investment over 90 days.

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

IMPERIAL TOBACCO   vs.  FEMALE HEALTH

IMPERIAL TOBACCO

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in IMPERIAL TOBACCO are ranked lower than 19 (%) 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.

FEMALE HEALTH

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FEMALE HEALTH has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, FEMALE HEALTH is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with IMPERIAL TOBACCO and FEMALE HEALTH

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

The idea behind IMPERIAL TOBACCO and FEMALE HEALTH 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..