Correlation Between IMPERIAL TOBACCO and AWILCO DRILLING

Can any of the company-specific risk be diversified away by investing in both IMPERIAL TOBACCO and AWILCO DRILLING 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 AWILCO DRILLING into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between IMPERIAL TOBACCO and AWILCO DRILLING PLC, you can compare the effects of market volatilities on IMPERIAL TOBACCO and AWILCO DRILLING 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 AWILCO DRILLING. Check out your portfolio center. Please also check ongoing floating volatility patterns of IMPERIAL TOBACCO and AWILCO DRILLING.

Diversification Opportunities for IMPERIAL TOBACCO and AWILCO DRILLING

0.1

Correlation Coefficient

IMPERIAL TOBACCO  AWILCO DRILLING

Average diversification

The 3 months correlation between IMPERIAL and AWILCO is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding IMPERIAL TOBACCO and AWILCO DRILLING PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AWILCO DRILLING PLC 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 AWILCO DRILLING. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AWILCO DRILLING PLC has no effect on the direction of IMPERIAL TOBACCO i.e., IMPERIAL TOBACCO and AWILCO DRILLING go up and down completely randomly.

Pair Corralation between IMPERIAL TOBACCO and AWILCO DRILLING

Assuming the 90 days trading horizon IMPERIAL TOBACCO is expected to generate 0.24 times more return on investment than AWILCO DRILLING. However, IMPERIAL TOBACCO is 4.17 times less risky than AWILCO DRILLING. It trades about 0.25 of its potential returns per unit of risk. AWILCO DRILLING PLC is currently generating about -0.01 per unit of risk. If you would invest  2,578  in IMPERIAL TOBACCO on September 22, 2024 and sell it today you would earn a total of  503.00  from holding IMPERIAL TOBACCO or generate 19.51% return on investment over 90 days.

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

IMPERIAL TOBACCO   vs.  AWILCO DRILLING PLC

IMPERIAL TOBACCO

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in IMPERIAL TOBACCO are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental drivers, IMPERIAL TOBACCO unveiled solid returns over the last few months and may actually be approaching a breakup point.

AWILCO DRILLING PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AWILCO DRILLING PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, AWILCO DRILLING is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IMPERIAL TOBACCO and AWILCO DRILLING

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

The idea behind IMPERIAL TOBACCO and AWILCO DRILLING PLC 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.