Correlation Between Nippon Light and Imperial Brands

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

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

Diversification Opportunities for Nippon Light and Imperial Brands

-0.37

Correlation Coefficient

Nippon Light  Imperial Brands

Very good diversification

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

Pair Corralation between Nippon Light and Imperial Brands

Assuming the 90 days horizon Nippon Light Metal is expected to under-perform the Imperial Brands. In addition to that, Nippon Light is 1.38 times more volatile than Imperial Brands PLC. It trades about 0.0 of its total potential returns per unit of risk. Imperial Brands PLC is currently generating about 0.07 per unit of volatility. If you would invest  2,055  in Imperial Brands PLC on October 23, 2024 and sell it today you would earn a total of  1,014  from holding Imperial Brands PLC or generate 49.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Nippon Light Metal  vs.  Imperial Brands PLC

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.

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.

Pair Trading with Nippon Light and Imperial Brands

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

The idea behind Nippon Light Metal and Imperial Brands PLC 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.