Correlation Between Imperial Brands and Diversified Energy
Can any of the company-specific risk be diversified away by investing in both Imperial Brands and Diversified Energy 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 Diversified Energy 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 Diversified Energy, you can compare the effects of market volatilities on Imperial Brands and Diversified Energy 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 Diversified Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Imperial Brands and Diversified Energy.
Diversification Opportunities for Imperial Brands and Diversified Energy
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Imperial and Diversified is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Brands PLC and Diversified Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Diversified Energy 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 Diversified Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Diversified Energy has no effect on the direction of Imperial Brands i.e., Imperial Brands and Diversified Energy go up and down completely randomly.
Pair Corralation between Imperial Brands and Diversified Energy
Assuming the 90 days trading horizon Imperial Brands is expected to generate 5.04 times less return on investment than Diversified Energy. But when comparing it to its historical volatility, Imperial Brands PLC is 3.87 times less risky than Diversified Energy. It trades about 0.12 of its potential returns per unit of risk. Diversified Energy is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest 126,100 in Diversified Energy on October 12, 2024 and sell it today you would earn a total of 9,500 from holding Diversified Energy or generate 7.53% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Imperial Brands PLC vs. Diversified Energy
Performance |
| Timeline |
| Imperial Brands PLC |
| Diversified Energy |
Imperial Brands and Diversified Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Imperial Brands and Diversified Energy
The main advantage of trading using opposite Imperial Brands and Diversified Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Imperial Brands position performs unexpectedly, Diversified Energy 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 Diversified Energy will offset losses from the drop in Diversified Energy's long position.| Imperial Brands vs. Zoom Video Communications | Imperial Brands vs. Scandinavian Tobacco Group | Imperial Brands vs. Gaztransport et Technigaz | Imperial Brands vs. Compal Electronics GDR |
| Diversified Energy vs. Zoom Video Communications | Diversified Energy vs. Endo International PLC | Diversified Energy vs. Imperial Brands PLC | Diversified Energy vs. Tissue Regenix Group |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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