Correlation Between IMPERIAL TOBACCO and Vanguard Funds

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

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

Diversification Opportunities for IMPERIAL TOBACCO and Vanguard Funds

0.93

Correlation Coefficient

IMPERIAL TOBACCO  Vanguard Funds

Almost no diversification

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

Pair Corralation between IMPERIAL TOBACCO and Vanguard Funds

Assuming the 90 days trading horizon IMPERIAL TOBACCO is expected to generate 1.04 times more return on investment than Vanguard Funds. However, IMPERIAL TOBACCO is 1.04 times more volatile than Vanguard Funds Public. It trades about 0.3 of its potential returns per unit of risk. Vanguard Funds Public is currently generating about 0.12 per unit of risk. If you would invest  2,684  in IMPERIAL TOBACCO on September 22, 2024 and sell it today you would earn a total of  397.00  from holding IMPERIAL TOBACCO or generate 14.79% 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.  Vanguard Funds Public

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.

Vanguard Funds Public

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Funds Public are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Vanguard Funds may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IMPERIAL TOBACCO and Vanguard Funds

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

The idea behind IMPERIAL TOBACCO and Vanguard Funds Public 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.