Correlation Between Ford and Imperial Brands
Can any of the company-specific risk be diversified away by investing in both Ford 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 Ford and Imperial Brands into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Imperial Brands PLC, you can compare the effects of market volatilities on Ford 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 Ford with a short position of Imperial Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Imperial Brands.
Diversification Opportunities for Ford and Imperial Brands
0.24 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Ford and Imperial is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor 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 Ford 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 Ford Motor 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 Ford i.e., Ford and Imperial Brands go up and down completely randomly.
Pair Corralation between Ford and Imperial Brands
Taking into account the 90-day investment horizon Ford is expected to generate 1.77 times less return on investment than Imperial Brands. In addition to that, Ford is 2.06 times more volatile than Imperial Brands PLC. It trades about 0.03 of its total potential returns per unit of risk. Imperial Brands PLC is currently generating about 0.12 per unit of volatility. If you would invest 2,300 in Imperial Brands PLC on August 27, 2024 and sell it today you would earn a total of 876.00 from holding Imperial Brands PLC or generate 38.09% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Imperial Brands PLC
Performance |
| Timeline |
| Ford Motor |
| Imperial Brands PLC |
Ford and Imperial Brands Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Imperial Brands
The main advantage of trading using opposite Ford and Imperial Brands positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor 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.| Imperial Brands vs. Embotelladora Andina SA | Imperial Brands vs. Signet International Holdings | Imperial Brands vs. National Beverage Corp | Imperial Brands vs. PT Astra International |
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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