Correlation Between Imperial Brands and Nippon Light

Can any of the company-specific risk be diversified away by investing in both Imperial Brands and Nippon Light 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 Nippon Light 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 Nippon Light Metal, you can compare the effects of market volatilities on Imperial Brands and Nippon Light 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 Nippon Light. Check out your portfolio center. Please also check ongoing floating volatility patterns of Imperial Brands and Nippon Light.

Diversification Opportunities for Imperial Brands and Nippon Light

-0.37

Correlation Coefficient

Imperial Brands  Nippon Light

Very good diversification

The 3 months correlation between Imperial and Nippon is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Brands PLC and Nippon Light Metal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Light Metal 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 Nippon Light. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Light Metal has no effect on the direction of Imperial Brands i.e., Imperial Brands and Nippon Light go up and down completely randomly.

Pair Corralation between Imperial Brands and Nippon Light

Assuming the 90 days trading horizon Imperial Brands PLC is expected to generate 0.61 times more return on investment than Nippon Light. However, Imperial Brands PLC is 1.65 times less risky than Nippon Light. It trades about 0.22 of its potential returns per unit of risk. Nippon Light Metal is currently generating about -0.02 per unit of risk. If you would invest  2,692  in Imperial Brands PLC on October 23, 2024 and sell it today you would earn a total of  377.00  from holding Imperial Brands PLC or generate 14.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

Imperial Brands PLC  vs.  Nippon Light Metal

Imperial Brands PLC

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Brands PLC are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady fundamental drivers, Imperial Brands unveiled solid returns over the last few months and may actually be approaching a breakup point.

Nippon Light Metal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nippon Light Metal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Nippon Light 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 Brands and Nippon Light

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

The idea behind Imperial Brands PLC and Nippon Light Metal 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 CEOs Directory module to screen CEOs from public companies around the world.