Correlation Between Adecoagro and Imperial Brands

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

By analyzing existing cross correlation between Adecoagro SA and Imperial Brands PLC, you can compare the effects of market volatilities on Adecoagro and Imperial Brands 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 Adecoagro with a short position of Imperial Brands. Check out your portfolio center. Please also check ongoing floating volatility patterns of Adecoagro and Imperial Brands.

Diversification Opportunities for Adecoagro and Imperial Brands

-0.46

Correlation Coefficient

Adecoagro  Imperial Brands

Very good diversification

The 3 months correlation between Adecoagro and Imperial is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Adecoagro SA and Imperial Brands PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Imperial Brands PLC and Adecoagro 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 Adecoagro SA are associated (or correlated) with Imperial Brands. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Imperial Brands PLC has no effect on the direction of Adecoagro i.e., Adecoagro and Imperial Brands go up and down completely randomly.

Pair Corralation between Adecoagro and Imperial Brands

Given the investment horizon of 90 days Adecoagro is expected to generate 1.0 times less return on investment than Imperial Brands. In addition to that, Adecoagro is 2.14 times more volatile than Imperial Brands PLC. It trades about 0.06 of its total potential returns per unit of risk. Imperial Brands PLC is currently generating about 0.13 per unit of volatility. If you would invest  2,220  in Imperial Brands PLC on January 26, 2024 and sell it today you would earn a total of  65.00  from holding Imperial Brands PLC or generate 2.93% return on investment over 90 days.

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

Adecoagro SA  vs.  Imperial Brands PLC

Adecoagro SA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Adecoagro SA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Adecoagro may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Imperial Brands PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Imperial Brands PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental drivers, Imperial Brands is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Adecoagro and Imperial Brands

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

The idea behind Adecoagro SA and Imperial Brands 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.

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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.