Correlation Between Imperial Brands and Altria

Can any of the company-specific risk be diversified away by investing in both Imperial Brands and Altria 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 Altria 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 Altria Group, you can compare the effects of market volatilities on Imperial Brands and Altria 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 Altria. Check out your portfolio center. Please also check ongoing floating volatility patterns of Imperial Brands and Altria.

Diversification Opportunities for Imperial Brands and Altria

0.48

Correlation Coefficient

Imperial Brands  Altria

Very weak diversification

The 3 months correlation between Imperial and Altria is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Brands PLC and Altria Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Altria Group 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 Altria. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Altria Group has no effect on the direction of Imperial Brands i.e., Imperial Brands and Altria go up and down completely randomly.

Pair Corralation between Imperial Brands and Altria

Assuming the 90 days horizon Imperial Brands PLC is expected to generate 2.24 times more return on investment than Altria. However, Imperial Brands is 2.24 times more volatile than Altria Group. It trades about 0.13 of its potential returns per unit of risk. Altria Group is currently generating about 0.11 per unit of risk. If you would invest  2,781  in Imperial Brands PLC on August 30, 2024 and sell it today you would earn a total of  684.00  from holding Imperial Brands PLC or generate 24.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Imperial Brands PLC  vs.  Altria Group

Imperial Brands PLC

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Brands PLC are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental drivers, Imperial Brands reported solid returns over the last few months and may actually be approaching a breakup point.

Altria Group

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Altria Group are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Altria may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Imperial Brands and Altria

The main advantage of trading using opposite Imperial Brands and Altria positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Imperial Brands position performs unexpectedly, Altria 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 Altria will offset losses from the drop in Altria's long position.

The idea behind Imperial Brands PLC and Altria Group 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.

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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..