Correlation Between Imperial Brands and Universal
Can any of the company-specific risk be diversified away by investing in both Imperial Brands and Universal 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 Universal 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 Universal, you can compare the effects of market volatilities on Imperial Brands and Universal 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 Universal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Imperial Brands and Universal.
Diversification Opportunities for Imperial Brands and Universal
0.6 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Imperial and Universal is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Brands PLC and Universal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal 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 Universal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal has no effect on the direction of Imperial Brands i.e., Imperial Brands and Universal go up and down completely randomly.
Pair Corralation between Imperial Brands and Universal
Assuming the 90 days horizon Imperial Brands PLC is expected to generate 0.69 times more return on investment than Universal. However, Imperial Brands PLC is 1.45 times less risky than Universal. It trades about -0.11 of its potential returns per unit of risk. Universal is currently generating about -0.19 per unit of risk. If you would invest 3,225 in Imperial Brands PLC on October 20, 2024 and sell it today you would lose (62.00) from holding Imperial Brands PLC or give up 1.92% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Imperial Brands PLC vs. Universal
Performance |
| Timeline |
| Imperial Brands PLC |
| Universal |
Imperial Brands and Universal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Imperial Brands and Universal
The main advantage of trading using opposite Imperial Brands and Universal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Imperial Brands position performs unexpectedly, Universal 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 Universal will offset losses from the drop in Universal's long position.| Imperial Brands vs. Japan Tobacco | Imperial Brands vs. British American Tobacco | Imperial Brands vs. Turning Point Brands | Imperial Brands vs. Universal |
| Universal vs. Imperial Brands PLC | Universal vs. Japan Tobacco ADR | Universal vs. Philip Morris International | Universal vs. Turning Point Brands |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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