Correlation Between IMPERIAL TOBACCO and Varta AG

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

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

Diversification Opportunities for IMPERIAL TOBACCO and Varta AG

-0.48

Correlation Coefficient

IMPERIAL TOBACCO  Varta AG

Very good diversification

The 3 months correlation between IMPERIAL and Varta is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding IMPERIAL TOBACCO and Varta AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Varta AG 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 Varta AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Varta AG has no effect on the direction of IMPERIAL TOBACCO i.e., IMPERIAL TOBACCO and Varta AG go up and down completely randomly.

Pair Corralation between IMPERIAL TOBACCO and Varta AG

Assuming the 90 days trading horizon IMPERIAL TOBACCO is expected to generate 0.1 times more return on investment than Varta AG. However, IMPERIAL TOBACCO is 10.32 times less risky than Varta AG. It trades about 0.15 of its potential returns per unit of risk. Varta AG is currently generating about -0.02 per unit of risk. If you would invest  2,077  in IMPERIAL TOBACCO on October 9, 2024 and sell it today you would earn a total of  1,052  from holding IMPERIAL TOBACCO or generate 50.65% 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.  Varta AG

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 fragile fundamental drivers, IMPERIAL TOBACCO unveiled solid returns over the last few months and may actually be approaching a breakup point.

Varta AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Varta AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with IMPERIAL TOBACCO and Varta AG

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

The idea behind IMPERIAL TOBACCO and Varta AG 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.