Correlation Between IMPERIAL TOBACCO and Performance Food

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

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

Diversification Opportunities for IMPERIAL TOBACCO and Performance Food

0.93

Correlation Coefficient

IMPERIAL TOBACCO  Performance Food

Almost no diversification

The 3 months correlation between IMPERIAL and Performance is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding IMPERIAL TOBACCO and Performance Food Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Performance Food 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 Performance Food. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Performance Food has no effect on the direction of IMPERIAL TOBACCO i.e., IMPERIAL TOBACCO and Performance Food go up and down completely randomly.

Pair Corralation between IMPERIAL TOBACCO and Performance Food

Assuming the 90 days trading horizon IMPERIAL TOBACCO is expected to generate 0.76 times more return on investment than Performance Food. However, IMPERIAL TOBACCO is 1.31 times less risky than Performance Food. It trades about 0.05 of its potential returns per unit of risk. Performance Food Group is currently generating about -0.3 per unit of risk. If you would invest  3,100  in IMPERIAL TOBACCO on October 8, 2024 and sell it today you would earn a total of  15.00  from holding IMPERIAL TOBACCO or generate 0.48% return on investment over 90 days.

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

IMPERIAL TOBACCO   vs.  Performance Food Group

IMPERIAL TOBACCO

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in IMPERIAL TOBACCO are ranked lower than 24 (%) 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.

Performance Food

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Performance Food Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Performance Food unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IMPERIAL TOBACCO and Performance Food

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

The idea behind IMPERIAL TOBACCO and Performance Food Group 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.