Correlation Between IMPERIAL TOBACCO and Adtalem Global

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

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

Diversification Opportunities for IMPERIAL TOBACCO and Adtalem Global

0.88

Correlation Coefficient

IMPERIAL TOBACCO  Adtalem Global

Very poor diversification

The 3 months correlation between IMPERIAL and Adtalem is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding IMPERIAL TOBACCO and Adtalem Global Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adtalem Global Education 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 Adtalem Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adtalem Global Education has no effect on the direction of IMPERIAL TOBACCO i.e., IMPERIAL TOBACCO and Adtalem Global go up and down completely randomly.

Pair Corralation between IMPERIAL TOBACCO and Adtalem Global

Assuming the 90 days trading horizon IMPERIAL TOBACCO is expected to generate 1.27 times less return on investment than Adtalem Global. But when comparing it to its historical volatility, IMPERIAL TOBACCO is 1.93 times less risky than Adtalem Global. It trades about 0.28 of its potential returns per unit of risk. Adtalem Global Education is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  6,650  in Adtalem Global Education on September 20, 2024 and sell it today you would earn a total of  1,900  from holding Adtalem Global Education or generate 28.57% return on investment over 90 days.

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

IMPERIAL TOBACCO   vs.  Adtalem Global Education

IMPERIAL TOBACCO

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in IMPERIAL TOBACCO are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain fundamental drivers, IMPERIAL TOBACCO unveiled solid returns over the last few months and may actually be approaching a breakup point.

Adtalem Global Education

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Adtalem Global Education are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Adtalem Global unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IMPERIAL TOBACCO and Adtalem Global

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

The idea behind IMPERIAL TOBACCO and Adtalem Global Education 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.