Correlation Between IMPERIAL TOBACCO and CHINA HUARONG

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

By analyzing existing cross correlation between IMPERIAL TOBACCO and CHINA HUARONG ENERHD 50, you can compare the effects of market volatilities on IMPERIAL TOBACCO and CHINA HUARONG 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 CHINA HUARONG. Check out your portfolio center. Please also check ongoing floating volatility patterns of IMPERIAL TOBACCO and CHINA HUARONG.

Diversification Opportunities for IMPERIAL TOBACCO and CHINA HUARONG

-0.06

Correlation Coefficient

IMPERIAL TOBACCO  CHINA HUARONG

Good diversification

The 3 months correlation between IMPERIAL and CHINA is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding IMPERIAL TOBACCO and CHINA HUARONG ENERHD 50 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA HUARONG ENERHD 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 CHINA HUARONG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA HUARONG ENERHD has no effect on the direction of IMPERIAL TOBACCO i.e., IMPERIAL TOBACCO and CHINA HUARONG go up and down completely randomly.

Pair Corralation between IMPERIAL TOBACCO and CHINA HUARONG

Assuming the 90 days trading horizon IMPERIAL TOBACCO is expected to generate 0.09 times more return on investment than CHINA HUARONG. However, IMPERIAL TOBACCO is 11.52 times less risky than CHINA HUARONG. It trades about 0.3 of its potential returns per unit of risk. CHINA HUARONG ENERHD 50 is currently generating about -0.04 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 Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

IMPERIAL TOBACCO   vs.  CHINA HUARONG ENERHD 50

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.

CHINA HUARONG ENERHD

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA HUARONG ENERHD 50 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CHINA HUARONG reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IMPERIAL TOBACCO and CHINA HUARONG

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

The idea behind IMPERIAL TOBACCO and CHINA HUARONG ENERHD 50 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.

Check out your portfolio center.

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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.