Correlation Between IMPERIAL TOBACCO and VOLVO B

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

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

Diversification Opportunities for IMPERIAL TOBACCO and VOLVO B

0.17

Correlation Coefficient

IMPERIAL TOBACCO  VOLVO B

Average diversification

The 3 months correlation between IMPERIAL and VOLVO is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding IMPERIAL TOBACCO and VOLVO B UNSPADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VOLVO B UNSPADR 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 VOLVO B. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VOLVO B UNSPADR has no effect on the direction of IMPERIAL TOBACCO i.e., IMPERIAL TOBACCO and VOLVO B go up and down completely randomly.

Pair Corralation between IMPERIAL TOBACCO and VOLVO B

Assuming the 90 days trading horizon IMPERIAL TOBACCO is expected to generate 0.69 times more return on investment than VOLVO B. However, IMPERIAL TOBACCO is 1.46 times less risky than VOLVO B. It trades about 0.25 of its potential returns per unit of risk. VOLVO B UNSPADR is currently generating about 0.0 per unit of risk. If you would invest  2,519  in IMPERIAL TOBACCO on September 3, 2024 and sell it today you would earn a total of  560.00  from holding IMPERIAL TOBACCO or generate 22.23% 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.  VOLVO B UNSPADR

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.

VOLVO B UNSPADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VOLVO B UNSPADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, VOLVO B is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IMPERIAL TOBACCO and VOLVO B

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

The idea behind IMPERIAL TOBACCO and VOLVO B UNSPADR 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.