Correlation Between NORTHEAST UTILITIES and IMPERIAL TOBACCO
Can any of the company-specific risk be diversified away by investing in both NORTHEAST UTILITIES and IMPERIAL TOBACCO 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 NORTHEAST UTILITIES and IMPERIAL TOBACCO into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between NORTHEAST UTILITIES and IMPERIAL TOBACCO , you can compare the effects of market volatilities on NORTHEAST UTILITIES and IMPERIAL TOBACCO 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 NORTHEAST UTILITIES with a short position of IMPERIAL TOBACCO. Check out your portfolio center. Please also check ongoing floating volatility patterns of NORTHEAST UTILITIES and IMPERIAL TOBACCO.
Diversification Opportunities for NORTHEAST UTILITIES and IMPERIAL TOBACCO
-0.49 | Correlation Coefficient |
Very good diversification
The 3 months correlation between NORTHEAST and IMPERIAL is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding NORTHEAST UTILITIES and IMPERIAL TOBACCO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IMPERIAL TOBACCO and NORTHEAST UTILITIES 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 NORTHEAST UTILITIES are associated (or correlated) with IMPERIAL TOBACCO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IMPERIAL TOBACCO has no effect on the direction of NORTHEAST UTILITIES i.e., NORTHEAST UTILITIES and IMPERIAL TOBACCO go up and down completely randomly.
Pair Corralation between NORTHEAST UTILITIES and IMPERIAL TOBACCO
Assuming the 90 days trading horizon NORTHEAST UTILITIES is expected to under-perform the IMPERIAL TOBACCO. In addition to that, NORTHEAST UTILITIES is 2.1 times more volatile than IMPERIAL TOBACCO . It trades about -0.13 of its total potential returns per unit of risk. IMPERIAL TOBACCO is currently generating about 0.11 per unit of volatility. If you would invest 3,107 in IMPERIAL TOBACCO on October 11, 2024 and sell it today you would earn a total of 36.00 from holding IMPERIAL TOBACCO or generate 1.16% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
NORTHEAST UTILITIES vs. IMPERIAL TOBACCO
Performance |
| Timeline |
| NORTHEAST UTILITIES |
| IMPERIAL TOBACCO |
NORTHEAST UTILITIES and IMPERIAL TOBACCO Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with NORTHEAST UTILITIES and IMPERIAL TOBACCO
The main advantage of trading using opposite NORTHEAST UTILITIES and IMPERIAL TOBACCO positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NORTHEAST UTILITIES position performs unexpectedly, IMPERIAL TOBACCO 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 TOBACCO will offset losses from the drop in IMPERIAL TOBACCO's long position.| NORTHEAST UTILITIES vs. CDN IMPERIAL BANK | NORTHEAST UTILITIES vs. Acadia Healthcare | NORTHEAST UTILITIES vs. Webster Financial | NORTHEAST UTILITIES vs. CVW CLEANTECH INC |
| IMPERIAL TOBACCO vs. UNITED UTILITIES GR | IMPERIAL TOBACCO vs. Chesapeake Utilities | IMPERIAL TOBACCO vs. NORTHEAST UTILITIES | IMPERIAL TOBACCO vs. Synchrony Financial |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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