Correlation Between IMPERIAL TOBACCO and American Homes
Can any of the company-specific risk be diversified away by investing in both IMPERIAL TOBACCO and American Homes 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 TOBACCO and American Homes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between IMPERIAL TOBACCO and American Homes 4, you can compare the effects of market volatilities on IMPERIAL TOBACCO and American Homes 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 TOBACCO with a short position of American Homes. Check out your portfolio center. Please also check ongoing floating volatility patterns of IMPERIAL TOBACCO and American Homes.
Diversification Opportunities for IMPERIAL TOBACCO and American Homes
0.39 | Correlation Coefficient |
Weak diversification
The 3 months correlation between IMPERIAL and American is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding IMPERIAL TOBACCO and American Homes 4 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Homes 4 and IMPERIAL TOBACCO 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 TOBACCO are associated (or correlated) with American Homes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Homes 4 has no effect on the direction of IMPERIAL TOBACCO i.e., IMPERIAL TOBACCO and American Homes go up and down completely randomly.
Pair Corralation between IMPERIAL TOBACCO and American Homes
Assuming the 90 days trading horizon IMPERIAL TOBACCO is expected to generate 0.44 times more return on investment than American Homes. However, IMPERIAL TOBACCO is 2.3 times less risky than American Homes. It trades about -0.06 of its potential returns per unit of risk. American Homes 4 is currently generating about -0.1 per unit of risk. If you would invest 3,096 in IMPERIAL TOBACCO on October 22, 2024 and sell it today you would lose (23.00) from holding IMPERIAL TOBACCO or give up 0.74% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
IMPERIAL TOBACCO vs. American Homes 4
Performance |
| Timeline |
| IMPERIAL TOBACCO |
| American Homes 4 |
IMPERIAL TOBACCO and American Homes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IMPERIAL TOBACCO and American Homes
The main advantage of trading using opposite IMPERIAL TOBACCO and American Homes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IMPERIAL TOBACCO position performs unexpectedly, American Homes 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 American Homes will offset losses from the drop in American Homes' long position.| IMPERIAL TOBACCO vs. Corporate Travel Management | IMPERIAL TOBACCO vs. Sims Metal Management | IMPERIAL TOBACCO vs. SUN LIFE FINANCIAL | IMPERIAL TOBACCO vs. United Insurance Holdings |
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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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