Correlation Between Imperial Brands and Imperial Metals

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

By analyzing existing cross correlation between Imperial Brands PLC and Imperial Metals, you can compare the effects of market volatilities on Imperial Brands and Imperial Metals 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 Brands with a short position of Imperial Metals. Check out your portfolio center. Please also check ongoing floating volatility patterns of Imperial Brands and Imperial Metals.

Diversification Opportunities for Imperial Brands and Imperial Metals

-0.35

Correlation Coefficient

Imperial Brands  Imperial Metals

Very good diversification

The 3 months correlation between Imperial and Imperial is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Brands PLC and Imperial Metals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Metals and Imperial Brands 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 Brands PLC are associated (or correlated) with Imperial Metals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Metals has no effect on the direction of Imperial Brands i.e., Imperial Brands and Imperial Metals go up and down completely randomly.

Pair Corralation between Imperial Brands and Imperial Metals

Assuming the 90 days trading horizon Imperial Brands PLC is expected to generate 0.4 times more return on investment than Imperial Metals. However, Imperial Brands PLC is 2.5 times less risky than Imperial Metals. It trades about 0.15 of its potential returns per unit of risk. Imperial Metals is currently generating about -0.02 per unit of risk. If you would invest  2,120  in Imperial Brands PLC on October 7, 2024 and sell it today you would earn a total of  1,004  from holding Imperial Brands PLC or generate 47.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Imperial Brands PLC  vs.  Imperial Metals

Imperial Brands PLC

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Brands PLC are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental drivers, Imperial Brands unveiled solid returns over the last few months and may actually be approaching a breakup point.

Imperial Metals

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Imperial Brands and Imperial Metals

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

The idea behind Imperial Brands PLC and Imperial Metals 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.