Correlation Between IMPERIAL TOBACCO and US Foods

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

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

Diversification Opportunities for IMPERIAL TOBACCO and US Foods

0.94

Correlation Coefficient

IMPERIAL TOBACCO  US Foods

Almost no diversification

The 3 months correlation between IMPERIAL and UFH is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding IMPERIAL TOBACCO and US Foods Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Foods Holding 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 US Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Foods Holding has no effect on the direction of IMPERIAL TOBACCO i.e., IMPERIAL TOBACCO and US Foods go up and down completely randomly.

Pair Corralation between IMPERIAL TOBACCO and US Foods

Assuming the 90 days trading horizon IMPERIAL TOBACCO is expected to generate 0.67 times more return on investment than US Foods. However, IMPERIAL TOBACCO is 1.5 times less risky than US Foods. It trades about 0.33 of its potential returns per unit of risk. US Foods Holding is currently generating about 0.17 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	Very Strong
Accuracy	100.0%
Values	Daily Returns

IMPERIAL TOBACCO   vs.  US Foods Holding

IMPERIAL TOBACCO

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in IMPERIAL TOBACCO are ranked lower than 26 (%) 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.

US Foods Holding

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days US Foods Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain basic indicators, US Foods reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IMPERIAL TOBACCO and US Foods

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

The idea behind IMPERIAL TOBACCO and US Foods Holding 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.