Correlation Between IMPERIAL TOBACCO and WILLIS LEASE

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

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

Diversification Opportunities for IMPERIAL TOBACCO and WILLIS LEASE

-0.48

Correlation Coefficient

IMPERIAL TOBACCO  WILLIS LEASE

Very good diversification

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

Pair Corralation between IMPERIAL TOBACCO and WILLIS LEASE

Assuming the 90 days trading horizon IMPERIAL TOBACCO is expected to generate 0.27 times more return on investment than WILLIS LEASE. However, IMPERIAL TOBACCO is 3.75 times less risky than WILLIS LEASE. It trades about 0.18 of its potential returns per unit of risk. WILLIS LEASE FIN is currently generating about -0.08 per unit of risk. If you would invest  3,016  in IMPERIAL TOBACCO on December 30, 2024 and sell it today you would earn a total of  338.00  from holding IMPERIAL TOBACCO or generate 11.21% 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.  WILLIS LEASE FIN

IMPERIAL TOBACCO

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in IMPERIAL TOBACCO are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental drivers, IMPERIAL TOBACCO may actually be approaching a critical reversion point that can send shares even higher in April 2025.

WILLIS LEASE FIN

Risk-Adjusted Performance

Very Weak

Over the last 90 days WILLIS LEASE FIN has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with IMPERIAL TOBACCO and WILLIS LEASE

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

The idea behind IMPERIAL TOBACCO and WILLIS LEASE FIN 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.