Correlation Between Diversified Energy and Imperial Brands
Can any of the company-specific risk be diversified away by investing in both Diversified Energy 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 Diversified Energy and Imperial Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Diversified Energy and Imperial Brands PLC, you can compare the effects of market volatilities on Diversified Energy 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 Diversified Energy with a short position of Imperial Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Diversified Energy and Imperial Brands.
Diversification Opportunities for Diversified Energy and Imperial Brands
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Diversified and Imperial is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Diversified Energy 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 Diversified Energy 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 Diversified Energy 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 Diversified Energy i.e., Diversified Energy and Imperial Brands go up and down completely randomly.
Pair Corralation between Diversified Energy and Imperial Brands
Assuming the 90 days trading horizon Diversified Energy is expected to generate 2.75 times more return on investment than Imperial Brands. However, Diversified Energy is 2.75 times more volatile than Imperial Brands PLC. It trades about 0.58 of its potential returns per unit of risk. Imperial Brands PLC is currently generating about 0.7 per unit of risk. If you would invest 89,750 in Diversified Energy on August 30, 2024 and sell it today you would earn a total of 39,050 from holding Diversified Energy or generate 43.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Diversified Energy vs. Imperial Brands PLC
Performance |
| Timeline |
| Diversified Energy |
| Imperial Brands PLC |
Diversified Energy and Imperial Brands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Diversified Energy and Imperial Brands
The main advantage of trading using opposite Diversified Energy and Imperial Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Diversified Energy 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.| Diversified Energy vs. Zoom Video Communications | Diversified Energy vs. Enbridge | Diversified Energy vs. Endo International PLC | Diversified Energy vs. Games Workshop Group |
| Imperial Brands vs. Uniper SE | Imperial Brands vs. Mulberry Group PLC | Imperial Brands vs. London Security Plc | Imperial Brands vs. Triad Group PLC |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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