Correlation Between Dow Jones and Imperial Brands
Can any of the company-specific risk be diversified away by investing in both Dow Jones 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 Dow Jones and Imperial Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Imperial Brands PLC, you can compare the effects of market volatilities on Dow Jones 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 Dow Jones with a short position of Imperial Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Imperial Brands.
Diversification Opportunities for Dow Jones and Imperial Brands
0.37 | Correlation Coefficient |
Weak diversification
The 3 months correlation between Dow and Imperial is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial 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 Dow Jones 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 Dow Jones Industrial 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 Dow Jones i.e., Dow Jones and Imperial Brands go up and down completely randomly.
Pair Corralation between Dow Jones and Imperial Brands
Assuming the 90 days trading horizon Dow Jones Industrial is expected to under-perform the Imperial Brands. But the index apears to be less risky and, when comparing its historical volatility, Dow Jones Industrial is 1.78 times less risky than Imperial Brands. The index trades about -0.21 of its potential returns per unit of risk. The Imperial Brands PLC is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest 261,295 in Imperial Brands PLC on November 28, 2024 and sell it today you would earn a total of 17,405 from holding Imperial Brands PLC or generate 6.66% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Dow Jones Industrial vs. Imperial Brands PLC
Performance |
| Timeline |
Dow Jones and Imperial Brands Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Imperial Brands PLC
Pair trading matchups for Imperial Brands
Pair Trading with Dow Jones and Imperial Brands
The main advantage of trading using opposite Dow Jones and Imperial Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones 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.| Dow Jones vs. Starbucks | Dow Jones vs. Westinghouse Air Brake | Dow Jones vs. Finnair Oyj | Dow Jones vs. Mesa Air Group |
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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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