Correlation Between Imperial Brands and Green Globe

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

Diversification Opportunities for Imperial Brands and Green Globe

-0.3

Correlation Coefficient

Imperial Brands  Green Globe

Very good diversification

The 3 months correlation between Imperial and Green is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Imperial Brands PLC and Green Globe International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Green Globe International 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 Green Globe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Green Globe International has no effect on the direction of Imperial Brands i.e., Imperial Brands and Green Globe go up and down completely randomly.

Pair Corralation between Imperial Brands and Green Globe

Assuming the 90 days horizon Imperial Brands is expected to generate 2.34 times less return on investment than Green Globe. But when comparing it to its historical volatility, Imperial Brands PLC is 14.09 times less risky than Green Globe. It trades about 0.2 of its potential returns per unit of risk. Green Globe International is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  0.06  in Green Globe International on August 31, 2024 and sell it today you would lose (0.02) from holding Green Globe International or give up 33.33% of portfolio value over 90 days.

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

Imperial Brands PLC  vs.  Green Globe International

Imperial Brands PLC

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Imperial Brands PLC are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental drivers, Imperial Brands showed solid returns over the last few months and may actually be approaching a breakup point.

Green Globe International

Risk-Adjusted Performance

2 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Green Globe International are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak forward indicators, Green Globe demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Imperial Brands and Green Globe

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

The idea behind Imperial Brands PLC and Green Globe International 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.